Tip Credit

Certain food and beverage establishments are able to claim a credit for social security and Medicare taxes paid or incurred by the employer on certain employees’ tips. 

The following criteria must be met to claim the credit:

• Have had employees who received tips from customers for providing, delivering, or serving food or beverages for consumption. However, only if tipping of employees for delivering or serving food or beverages is customary.

• Have paid or incurred employer social security and Medicare taxes on those tips. 

• Must have paid employees the federal minimum wage for tipped employees, $5.15/ hr. However, the credit cannot be claimed on any tips that were used to meet the $5.15 an hour. If not paid the minimum wage, the credit would be reduced by the amount of tips used to reach the $5.15 an hour. 

If you have any questions, our team at BakerStarrett LLP is happy to help you. Give our office a call at 641-236-8083 to see if you qualify to claim the tip credit.