IRS Form 8846: How to Claim the FICA Tip Credit

IRS Form 8846 allows employers in the food and beverage industry to claim the Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips. This benefit is a component of the general business credit, providing a dollar-for-dollar reduction in tax liability. The credit is for the employer’s share of FICA taxes paid on a specific portion of employees’ reported tips.

Determining Eligibility for the Credit

To qualify for the FICA tip credit, a business must meet two primary conditions. First, it must be a food and beverage establishment where tipping is customary, such as a restaurant or bar. Second, the credit applies only to the employer’s share of FICA taxes paid on tips that exceed an established minimum wage.

For this calculation, the IRS specifies using the federal minimum wage rate from January 1, 2007, which is $5.15 per hour. Tips used to bring an employee’s hourly cash wage up to this $5.15 threshold are not eligible for the credit. For example, if an employee earns a cash wage of $3.00 per hour, the first $2.15 per hour of their tips do not qualify.

Information Needed to Complete Form 8846

To complete Form 8846, you will need a comprehensive record of the total tips reported by all employees for the tax year. You will also need the total amount of the employer’s share of Social Security and Medicare taxes paid on those reported tips. Detailed payroll records for each tipped employee are required, showing their direct cash wage per hour, the total hours they worked, and the amount of tips they reported.

Calculating the Credit and Completing the Form

The calculation of the FICA tip credit is performed directly on Form 8846. On Line 1, enter the total tips reported by employees that were subject to your share of FICA taxes. Line 2 determines the amount of non-creditable tips. For each employee, calculate the difference between the $5.15 per hour minimum wage and the actual cash wage paid, then multiply this by the total hours they worked.

The sum of these amounts for all employees is entered on Line 2; if you pay all tipped employees a cash wage of $5.15 per hour or more, you can enter zero. On Line 3, subtract the Line 2 amount from the total tips on Line 1 to find the creditable tips. You then multiply this result by the FICA tax rate of 7.65% (6.2% for Social Security and 1.45% for Medicare) to determine the credit amount.

A special calculation is required if an employee’s total wages and tips exceed the Social Security wage base limit, which is $176,100 for 2025. Since the employer’s 6.2% Social Security tax does not apply to earnings above this limit, the credit on any tips that fall above this threshold is calculated using only the 1.45% Medicare tax rate. Any FICA tip credits passed through from partnerships or S corporations are added on the following lines.

How to Claim the Credit

Once Form 8846 is completed, the credit is reported on Form 3800, General Business Credit. The total from Form 8846 is transferred to the appropriate line on Part III of Form 3800. Form 8846 must be attached to the business’s main income tax return as a supporting document. The completed Form 3800 is then filed with the business’s annual income tax return, such as Form 1120 for corporations, Form 1065 for partnerships, or Schedule C (Form 1040) for sole proprietors.