Form 8846 Calculator: FICA Tip Credit
Estimate your credit
Tips employees reported to you on which you paid employer FICA.
Sum across all tipped employees.
Direct wages only, not including tips.
This is the employer's share only. Do not include the employee's 7.65%.
This calculator estimates the employer FICA tip credit on IRS Form 8846. Enter your reported tips, hours worked, and cash wages paid, and it returns your creditable tips and the credit amount. It is built for owners, bookkeepers, and payroll managers at restaurants, bars, and other food and beverage businesses.
How the Form 8846 Credit Is Calculated
When employees report tips, you owe employer Social Security and Medicare tax on them. Form 8846 gives part of that tax back as an income tax credit. The credit is 7.65% of your creditable tips: 6.2% for Social Security plus 1.45% for Medicare. It covers the employer's share only.
The math has four steps. They match Lines 1 through 4 of the form, which our Form 8846 instructions walkthrough explains one line at a time.
- Add up the tips employees reported to you, on which you paid employer FICA tax.
- Find the tips that do not count. For each employee, take $5.15 times hours worked, then subtract the cash wages you paid. If the answer is zero or less, nothing is excluded.
- Subtract step 2 from step 1. The result is your creditable tips.
- Multiply creditable tips by 7.65%.
In one line: Credit = (reported tips - excluded tips) × 7.65%, where excluded tips = ($5.15 × hours) - cash wages, never below zero and never more than the employee's tips.
The Social Security part has a ceiling. The 6.2% rate applies only to an employee's wages and tips up to the Social Security wage base (for 2026, $176,100). Tips above that point earn only the 1.45% Medicare rate. Check any employee whose wages plus tips come close to the base.
What Counts as Creditable Tips
A tip is creditable when all of these are true:
- A customer gave it for providing, delivering, or serving food or drinks, in a business where tipping is customary.
- The employee reported it to you.
- You paid or incurred employer FICA tax on it.
- It is not needed to bring the employee's pay up to the $5.15 hourly floor.
Not every business that receives tips qualifies. Tips for haircuts, massages, or hotel services fall outside the credit. Our FICA tip credit guide has a full table of eligible and non-eligible tips, and salon owners should read the salon tip credit page before assuming they qualify. Restaurant operators can find examples on the restaurant tip credit page.
The $5.15 rule
Section 45B of the tax code sets $5.15 as the hourly wage floor for this credit. That was the federal minimum wage on January 1, 2007. The credit does not cover tips that are needed to bring an employee's pay up to $5.15 an hour. If you already pay at least $5.15 an hour in cash wages, nothing is excluded and all reported tips count.
The figure is frozen. It stays $5.15 even though the federal minimum wage is higher today. Read why in our $5.15 rule explainer. Your state's tipped wage matters only because it sets the cash wage you enter. See tip credit rules by state for the numbers.
Worked Example
A server reported $25,000 in tips over the year and worked 1,800 hours. The restaurant paid a cash wage of $2.13 an hour.
| Step | Calculation | Result |
|---|---|---|
| Pay at the $5.15 floor | 1,800 × $5.15 | $9,270 |
| Cash wages paid | 1,800 × $2.13 | $3,834 |
| Excluded tips (Line 2) | $9,270 - $3,834 | $5,436 |
| Creditable tips (Line 3) | $25,000 - $5,436 | $19,564 |
| Credit (Line 4) | $19,564 × 7.65% | $1,496.65 |
Now suppose the same server works where the cash wage is $12 an hour. Wages already exceed $5.15, so no tips are excluded. Creditable tips are the full $25,000, and the credit is $1,912.50.
One caution. The IRS figures Line 2 for each employee, month by month. Annual totals work fine for one employee with steady pay. For a full staff with mixed wage rates, run each person separately or ask your payroll provider for monthly detail. One employee's high wages cannot cover another employee's shortfall.
Common Mistakes
- Skipping cash wages. Subtracting $5.15 × hours from tips without subtracting the cash wages you paid understates your credit.
- Using today's minimum wage. The floor is $5.15, not the current federal or state minimum.
- Including the employee's share. Only the employer's 7.65% counts. Do not add what you withheld from paychecks.
- Counting unreported tips or service charges. The credit needs reported tips with employer FICA paid. Mandatory service charges are generally treated as wages, not tips.
- Ignoring the wage base. Above the Social Security wage base, only the 1.45% Medicare rate applies.
- Deducting the same amount twice. You cannot also deduct the credit amount as payroll expense. Your preparer needs to reduce the deduction.
FAQ
Do I need to file Form 8846 separately?
Yes, in most cases. Form 8846 is its own form, filed with your income tax return, and the result carries to Form 3800 (General Business Credit). Owners of a partnership or S corporation whose only source of the credit is that entity can skip Form 8846 and report their share directly on Form 3800.
Does this credit apply to the employee's share of FICA?
No. The credit covers only the employer's share, 7.65% of creditable tips. The 7.65% withheld from employees' paychecks is not part of it.
Is the $5.15 figure the same as my state's minimum wage?
No. $5.15 is the federal minimum wage as of January 1, 2007, and it is fixed in the tax code. Your state's cash wage for tipped workers only changes how much you enter as cash wages paid.
Can I claim the credit for earlier years?
Often yes, by filing an amended return within the normal time limit, which is generally three years. Ask your CPA to confirm the deadline for your situation.
Does the credit reduce my tax deduction?
Yes. You cannot deduct the same amount as wages or payroll tax expense, so your deduction drops by the amount of the credit. Your tax preparer makes this adjustment.
This tool is for estimation only. Consult a CPA or tax professional before filing.
Last updated: October 2026