FICA Tip Credit §45B 2026 Savings Calculator
The FICA tip credit under IRC §45B refunds the employer 7.65% Social Security and Medicare tax paid on employee tips above the $5.15/hour baseline (a frozen pre-1996 minimum wage figure, not the current federal $7.25). Restaurants claim it on Form 8846. Many independent operators leave $3,000-$50,000/year unclaimed.
| Total tips reported | — |
| $5.15/hr baseline wages (§45B floor) | — |
| Actual cash wages paid | — |
| Wage shortfall (subtract from tips) | — |
| Tips eligible for credit | — |
| §45B credit @ 7.65% | — |
| Net after-tax cash benefit | — |
The FICA tip credit under IRC §45B lets restaurants and food-service employers claim a federal income-tax credit equal to the employer share of Social Security and Medicare (7.65%) paid on tip income above a frozen $5.15/hour baseline wage. The credit is claimed on Form 8846 and flows into the General Business Credit on Form 3800. Last updated May 2026.
How the §45B Floor Works
The credit is not based on the current federal minimum wage ($7.25). Congress froze the §45B comparison rate at $5.15/hour, the federal minimum on January 1, 1997. For each tipped employee, you compute the wages they would have received at $5.15/hr (hours worked × $5.15), subtract the actual cash wages already paid, and any shortfall is filled from tips first. Only tips remaining above that shortfall qualify for the 7.65% credit. Because most restaurants pay the tip-credit minimum of $2.13/hr cash, the shortfall is small and nearly all reported tips qualify.
Who Can Claim §45B
Any food or beverage establishment where tipping is customary — restaurants, bars, cafés, hotel dining, banquet halls — that pays employer FICA tax on tip income. Both pass-through entities (S-corp, partnership, LLC) and C-corporations qualify; pass-through owners take the credit on their personal return via Schedule K-1. Tips must be voluntary, customer-paid, and reported by the employee on Form 4070 or via a tip-reporting agreement (TRDA/TRAC). Service charges added by the employer (auto-grat on parties of 6+) are wages, not tips, and do not qualify.
Common Mistakes That Cost Restaurants Thousands
(1) Not filing Form 8846 — the most common error. Tax preparers unfamiliar with restaurant clients miss this entirely. (2) Using $7.25 instead of $5.15 as the wage floor — costs you roughly $1,300 per full-time tipped employee per year in lost credit. (3) Forgetting unreported tips — if the IRS allocates tips to your employees (the 8% rule on large food establishments), those allocated tips still generate §45B credit. (4) Stacking with WOTC incorrectly — the same wages cannot generate both Work Opportunity Tax Credit and §45B; coordinate the two. (5) Missing amended-return windows — you can claim §45B going back 3 tax years on Form 1120-X or 1040-X.
2026 Planning Tips
The credit is nonrefundable but carries back 1 year and forward 20, so even loss-year restaurants should compute it. C-corp restaurants reduce their wage deduction by the credit amount (no double benefit). Pass-through owners can elect to NOT take the credit if they want the full wage deduction — rare, but useful in some state-tax planning. The credit is added back to AMT income only for years where AMT applies (rare for restaurants post-2018). Track tips by employee for 4 years in case of audit.
Last updated May 2026. Sources: IRS Form 8846 instructions (rev. 2024), IRC §45B, IRC §3121(q), National Restaurant Association.