As our favorite time of the year is currently upon us (yes, tax season!), it is a good time to remind restaurant owners of the tax credit due to them that most aren’t using. The tax credit, which is claimed on the restaurant owner’s tax return, is equal to the social security and Medicare taxes paid on certain employees’ tips.
How the credit works – generally, the credit equals the amount of employer FICA taxes paid on tips received by the employee. However, if the tipped employees are paid less than $5.15 per hour, the credit is reduced by the FICA taxes the employer would have paid on the difference.
The FICA tip credit was created so that businesses that employ tipped staff members are able to recover most of the money remitted for employment taxes. Taking advantage of this credit can save a restaurant owner a substantial amount of money. The information needed to calculate the tax credit should be readily available from the restaurant owner’s payroll provider. However, the calculation of the credit will require some professional assistance. If you are a restaurant owner and are not using this tax credit, please contact your Schneider Downs Retail Services representative for further assistance and information.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.