Available nowNo expiration date. Extended to beauty service businesses starting with tax year 2025.

IRC Section 45B · Form 8846 · Tax credit

FICA Tip Credit

Get back 7.65% of the tips your staff reports, as a dollar-for-dollar credit

New for 2025: beauty services now qualify for the first time

Who it is forRestaurants, bars, cafes, and delivery operations. As of tax year 2025, also barbershops, hair salons, nail salons, esthetics studios, and spas.

What it is worthCommonly a few thousand to tens of thousands of dollars a year for a business with a meaningful tipped staff. Scales directly with reported tip volume.

Where it is claimedForm 8846, under IRC Section 45B

Why businesses miss this one

Two reasons. Salons and spas were never eligible until tax year 2025, so most beauty-industry preparers have never filed this form and are not looking for it. And in restaurants it gets skipped because it requires per-employee, per-month payroll detail that a preparer working from summary totals will not have on hand.

How the money actually works

The credit equals your creditable tips multiplied by 7.65%, which is the employer share of Social Security (6.2%) and Medicare (1.45%).
Not every reported tip dollar counts. You subtract the tips that were effectively used to bring an employee up to a minimum wage floor. That subtraction is calculated per employee, per month, not annually.
The wage floor differs by business type. Food and beverage employers use $5.15 an hour, which is the federal minimum wage as it stood on January 1, 2007. Beauty service employers use the current $7.25 an hour. Beauty businesses therefore get a smaller credit per tipped dollar than restaurants do.
IRS worked example from the 2025 form: an employee works 100 hours in October 2025, receives $450 in tips, and is paid $375 in wages ($3.75 an hour). At the $5.15 floor they would have earned $515. Tips are reduced by the $140 gap. Creditable tips are $310.
If a tipped employee's wages plus tips exceed the Social Security wage base ($176,100 for 2025, $184,500 for 2026), tips above that base earn only the 1.45% Medicare rate instead of the full 7.65%.
This is a nonrefundable general business credit. If you have no tax liability this year it carries back 1 year and forward 20.

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Big Brain Funding is not a CPA firm, an enrolled agent, or a tax preparer. We do not prepare, file, or sign tax returns. This screener is educational and points you toward programs to discuss with a licensed tax professional.

What to gather before you call anyone

Organized records are the difference between a preparer who says it is not worth the trouble and one who finds the money. Have these ready.

Per-employee, per-month records of hours worked, cash wages paid excluding tips, and tips received. Monthly granularity is required, annual totals will not work.
Form 941 filings showing the employer Social Security and Medicare tax actually paid on those tips
Form 8027 if you are a large food or beverage establishment reporting allocated tips
A clear split between voluntary tips and mandatory service charges in your POS and payroll systems

Disqualifiers and traps

These are the places claims fall apart, either at filing or on examination.

Mandatory service charges are not tips. An automatic 18% added to large parties, or a mandatory salon service fee, is wages under Revenue Ruling 2012-18 and earns no credit. This is the single most common exam issue on this credit.
Using the wrong wage floor. A restaurant using $7.25 leaves money on the table. A salon using $5.15 overstates the credit.
Averaging across the year instead of computing the reduction month by month produces the wrong number.
You cannot both take the credit and deduct the same employer payroll tax. The income tax deduction must be reduced by the credit amount.
For beauty businesses the statute requires that tipping be customary for the service. A spa operating a strict no-tipping model does not qualify.
The IRS web page on this credit currently contradicts the actual Form 8846 on the minimum wage figure. The form and the statute govern. Do not let anyone compute your credit off that web page.

One more thing worth knowing

The employee-side 'no tax on tips' deduction under new Section 224 is a separate benefit. It does not reduce your employer credit. Both can apply to the same tip dollar.

Sources

Every figure on this page traces to one of these. All verified August 14, 2026.

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This is educational information, not tax advice. Big Brain Funding is not a CPA firm, an enrolled agent, or a tax preparer. We do not prepare, file, or sign tax returns, and we do not determine whether any business is eligible for any tax program. Eligibility depends on facts specific to your business and on tax law that changes. Nothing here is a promise of a refund, a credit, or a deduction amount. Confirm everything with a licensed CPA or enrolled agent before you file or amend a return.

Program details on this page were verified against official IRS and government sources on August 14, 2026. Tax law changes, sometimes mid-year. Check the linked sources for the current position before acting.