Are you getting the credit you deserve?

If you are an employer in the food and beverage industry, you may be entitled to a tax credit for the social security and Medicare taxes you pay on your employees' tip income. You must meet both of the following requirements to qualify for the credit:

  • You had employees who received tips from customers for providing, delivering, or serving food or beverages for consumption; and
  • You paid or incurred employer social security and Medicare taxes on these tips.

The credit applies only to tips received by food and beverage employees. It is not applicable to other tipped employees.

The credit equals the social security and Medicare taxes you paid on the tips received by the employees. However, no credit is given for tips used to meet the federal minimum wage rate of $7.25 per hour. For example, if you paid the employee $5.75 per hour and applied tips of $1.50 per hour to reach the $7.25 minimum wage, then the $1.50 per hour in tips cannot be used toward the credit. If, however, you paid each employee an amount equal to or more than the minimum wage without including tips, then you can compute the credit on all reported tips.

Since it is an income tax credit, claimed on an income tax return, you may use it to offset any regular income tax liability, but not employment tax liabilities. A credit is a dollar-for-dollar reduction of your regular tax liability, where an expense deduction only reduces your taxable income. Therefore, this credit can be more beneficial.

Tax Tips Small Business

  • Reimbursing Your Employees for Business Expenses

    What method should you choose?

    Attracting and keeping good employees is a goal in any business. One way to make life easier for your employees is to have an easy to use reimbursement plan. Travel, transportation, moving, and educational expenses are common reimbursable expenses. As the employer, you have the option to set up an accountable or nonaccountable reimbursement plan. Under either plan, you can deduct many of the business expenses paid to or for employees. However, the plan you choose can make a big difference to your employees.

    Read more ...

Small Business Quick Tip

  • SS Wage Base

    The Social Security wage base increases to $118,500 in 2016. This means that you are no longer required to withhold social security tax for employees after meeting this threshold. However, you are required to withhold Medicare taxes regardless of the amount of wages paid.
Friday, 22nd February 2019
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Tax Tips Personal

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