Tip Credit for business owner

[bodegahwy]

As most of you know, I am out of the pizza biz these days. I am doing business brokerage and I find myself working with small businesses and reviewing financials every week. In that process I am always looking to present the financials in the best light… There is one item that I have found a number of businesses (and their CPAs) are missing!

If you have employees being paid a tipped wage and declaring tips this probably applies to you:

The employer is obligated to pay the employer’s share of FICA on the wage and on the difference between the tipped wage and the minimum wage. You are also paying the employers share on the amount of declared tips which are above the minimum wage each pay period, but YOU CAN GET THAT BACK. This credit should appear on your K1 in box 13 Code N referring to Form 8846.

In the past year I have worked with three restaurants that were missing this tax credit. In a single location delivery business this might only amount to a couple thousand dollars per year but it is money in your pocket. In another case, the business owner re-filed the last couple of tax returns and got a refund of nearly $40,000! (changed CPAs too) The increase of almost 20K per year in income also translated into a stronger asking price for the business.

Check your tax return. If it is not there and you have employees making a tipped wage ask your CPA about it.

 

[jackaloo]

Is this only for pizza businesses that pay their drivers less than minimum wage while delivering?

 

[grassospizza1993]

Thank you. I called my CPA and I’ve been getting this credit for years.

 

[brad_randall]

Is this only for pizza businesses that pay their drivers less than minimum wage while delivering?

The FICA credit applies to declared tips beyond minimum wage. It’s an IRS incentive put in place to encourage business owners to educate their employees on the requirement to declare tips. If you’re paying at least minimum wage, then you’re already matching FICA taxes on all the driver’s declared tips. You can get those FICA taxes back as a CREDIT, not a deduction, an actual dollar-for-dollar credit.

In some states tips can be used to “make up” the difference in paid wage and minimum wage, like in Indiana the “minimum wage” for servers is $2.13/hour and employers can have declared tips count as wages that cover the gap between the $2.13 and $7.25. Those “gap” tips don’t count for the FICA credit, but everything declared above $7.25 does.