Form 8846 Instructions: Line-by-Line Walkthrough
This page walks through Form 8846 one line at a time and shows what belongs on each. The current form has six numbered lines. Our Form 8846 calculator does the math for Lines 1 to 4. Line numbers and wage-base figures can change with each yearly revision, so match this guide against the IRS form for your tax year before you file.
Before You Start
Gather these items first:
- Total tips employees reported, by employee and by month
- Hours worked by each tipped employee, by month
- Cash wages paid to each tipped employee, not counting tips
- The Social Security wage base for the year you are filing (for 2026, $176,100)
- Any K-1 showing a credit passed through from a partnership or S corporation
The form is for food and beverage employers whose employees receive customer tips. Our FICA tip credit guide explains who qualifies.
Line 1: Tips Received by Employees
Enter the total tips your employees received for providing, delivering, or serving food or drinks, limited to tips on which you paid or incurred employer Social Security and Medicare tax during the year. Payroll tip reports are the best source. Total tips on Form W-2, Box 7, and the tip lines on Form 941 are a good check. Leave out tips employees never reported to you and any mandatory service charges you paid as wages.
Line 2: Tips Not Subject to the Credit Provisions
This line causes the most errors. It removes the tips that merely bring an employee's pay up to $5.15 an hour. Our $5.15 rule explainer covers the background.
If you paid every tipped employee cash wages (not counting tips) of at least $5.15 an hour, enter zero and move on. Otherwise, work through each employee, one month at a time:
- Multiply the hours worked that month by $5.15.
- Subtract the cash wages actually paid for that month.
- If the result is above zero, that amount of the employee's tips is excluded. It cannot exceed the tips the employee received.
- Add up the excluded amounts for all employees and all months.
Here is one employee for one month. She worked 160 hours at a $2.13 cash wage and reported $1,400 in tips.
| Item | Calculation | Amount |
|---|---|---|
| Pay at the $5.15 floor | 160 × $5.15 | $824.00 |
| Cash wages paid | 160 × $2.13 | $340.80 |
| Excluded tips | $824.00 - $340.80 | $483.20 |
Do not net across employees. If one person earns more than $5.15 an hour in cash, that surplus does not offset a shortfall for someone else.
Line 3: Creditable Tips
Subtract Line 2 from Line 1. Using the same employee, $1,400 minus $483.20 gives $916.80 in creditable tips.
Line 4: The Credit
For most employers, multiply Line 3 by 7.65%. For the example, $916.80 × 7.65% is $70.14.
A different method applies if any employee's wages plus tips went over the Social Security wage base (for 2026, $176,100). Tips above the base are subject only to the 1.45% Medicare tax, so they earn a smaller credit. In that case you check the box on Line 4 and attach a separate computation showing the tips that were subject to Medicare tax only. Then figure the credit this way:
- Subtract the Medicare-only tips from Line 3.
- Multiply the difference by 7.65%.
- Multiply the Medicare-only tips by 1.45%.
- Add the two results. That total is your Line 4 credit.
Line 5: Credit From Pass-Through Entities
If you own an interest in a partnership or S corporation (or another pass-through source named on the form) that claims this credit, your share appears on your Schedule K-1. Enter it on Line 5. If that is your only source of the credit, you do not need to complete Form 8846. You can report the credit directly on Form 3800, Part III, line 4f.
Line 6: Total Credit
Add Lines 4 and 5. Partnerships and S corporations report the total on Schedule K so it passes through to the owners. Everyone else carries the total to Form 3800, Part III, line 4f, where it becomes part of the general business credit.
How the Calculator Maps to the Form
| Calculator field | Form 8846 line | Notes |
|---|---|---|
| Total tips reported | Line 1 | Only tips with employer FICA paid |
| Hours worked and cash wages paid | Line 2 | Calculator uses hours × $5.15 minus cash wages, floored at zero |
| Creditable tips (result) | Line 3 | Line 1 minus Line 2 |
| Estimated credit (result) | Line 4 | 7.65% of creditable tips |
| Tips above the wage base (optional) | Line 4, checkbox and attachment | Reduces the 6.2% portion for high earners |
| Not calculated | Lines 5 and 6 | Take pass-through amounts from your K-1 |
The calculator works from totals. If your staff has mixed pay rates, run it once per employee and add the results, or follow the monthly method above.
After You Complete the Form
- File it with your income tax return. Form 8846 is not sent with payroll tax filings.
- Keep your Line 2 workpapers. Save the monthly hours, cash wages, and tips for each employee with your tax records.
- Reduce your deduction. The payroll expense you deduct goes down by the amount of the credit. Your preparer handles this.
- Check amended-return timing. For earlier years, the normal amended-return window generally applies. Ask your CPA about your deadline.
FAQ
Where do I find the Line 1 number?
Start with your payroll tip reports: Box 7 on Forms W-2 and the tip lines on Form 941. Confirm the total only includes tips for food or beverage service on which you paid employer FICA.
What goes on Line 2 if I pay every tipped employee at least $5.15 an hour in cash?
Enter zero. Line 3 then equals Line 1, and all of your reported tips are creditable.
Do I attach Form 8846 to my return?
Yes. File it with your income tax return, then carry the total to Form 3800, Part III, line 4f. If you check the wage base box on Line 4, attach the separate computation the instructions ask for.
Does Form 8846 change my payroll deposits?
No. Keep depositing and reporting FICA on Form 941 as usual. The credit shows up only on your income tax return.
Ready to run your numbers? Use the Form 8846 calculator, or read the FICA tip credit guide to confirm you qualify.
Last updated: October 2026