Restaurants & Hospitality

Does your restaurant need a second look at the FICA tip credit?

Author

By Phil Hering

Published:

October 22, 2026

Updated:

October 22, 2026

Reading time

3 minute read

If your restaurant has employees who receive and report tips, here is a worthwhile question for your CPA: Have we reviewed Form 8846 for the years that may still be open?

The federal employer FICA tip credit concerns certain Social Security and Medicare taxes an employer paid or incurred on employee tips. It is part of the general business credit. That does not mean every tipped restaurant has an unused credit, or that an estimate equals a refund. Payroll records, the nature of the payments, prior returns, and the business's tax situation all matter. See the IRS FICA Tip Credit overview (opens in a new tab) and Form 8846 (opens in a new tab).

Here are five questions to take into the conversation.

1. Are employees reporting tips through payroll?

Which roles receive cash or card tips? How are employee reports captured and passed into payroll? Did the business pay employer Social Security and Medicare taxes on those reported tips? A rough headcount starts a conversation; it is not a credit calculation. Your payroll team and CPA will need records for each year they evaluate.

2. Are those payments voluntary tips or required service charges?

A customer-chosen tip and a required banquet charge may appear near each other in the point-of-sale system, but they have different tax treatment. The IRS says required service charges distributed to employees are wages, not tips, and do not enter the section 45B credit calculation. Ask how both categories are labeled and exported to payroll. Read our tips and service charges payroll check and the IRS explanation (opens in a new tab).

3. Has the credit already been evaluated?

Ask whether Form 8846 was claimed or considered on earlier returns. If the business has multiple entities or ownership changes, your CPA can identify which returns and taxpayers need review. An absent form in the papers you have on hand does not prove a credit was missed.

4. Which years are actually open?

A prior-year review begins with filing history and applicable deadlines, not a blanket promise of “three years back.” Ask your CPA which returns could still be changed, whether there are related general business credit considerations, and whether a proposed claim is supportable. Form 8846 and its instructions (opens in a new tab) are a starting reference, not a substitute for that review.

5. What does a specialist review involve?

A reviewer may request payroll detail, tip reporting, employment tax forms, and prior income-tax returns through a secure process. Before engaging anyone, ask for the scope, fee, payment timing, who prepares the work, who reviews it, and how the final filing decision is made. Your CPA should review the credit's treatment on the return and decide whether to file.

Start with a useful question

A Navigator Business Second Look helps you decide whether this is the right question to pursue, or whether payroll, benefits, onboarding, or another operating pressure needs attention first. Phil can connect you with a specialist when the facts support a deeper review. You can also contact us. No employee tax documents or business returns are needed for the first conversation.

More in this restaurant series: Tips versus service charges · New-hire onboarding · Payment processing costs. Explore Restaurants & Hospitality.

Educational information only, not tax or legal advice. A qualified tax professional must determine eligibility, amount, use, deadlines, and filing. No outcome is guaranteed.