An employer must pay a tipped worker at least $2.13 per hour under the FLSA. An employer can take an FLSA tip credit equal to the difference between the direct wage, or the cash wage it pays directly to the tipped employee, and the federal minimum wage, which is currently $7.25 per hour.

You should only file Form 8846 if you meet both of the following conditions: You had employees who received tips from customers for providing, delivering, or serving food or beverages for consumption if tipping of employees for delivering or serving food or beverages is customary.

Certain food and beverage establishments use this form to claim a credit for social security and Medicare taxes paid or incurred by the employer on certain employees' tips. The credit is part of the general business credit.

The tip credit system can be beneficial for restaurant owners, as it allows them to save money on labor costs and potentially increase their restaurants' profit margin.

All cash and non-cash tips an received by an employee are income and are subject to Federal income taxes. All cash tips received by an employee in any calendar month are subject to social security and Medicare taxes and must be reported to the employer.

Certain food and beverage employers (see Who Should File below) use Form 8846 to claim a credit for social security and Medicare taxes paid or incurred by the employer on certain employees' tips. The credit is part of the general business credit.

How do you calculate the FICA Tip Tax Credit? Hours worked x $5.15 = Minimum wage amount. Minimum wage amount — Actual wages paid = Ineligible credit amount. Total reported tips — Ineligible credit amount = Eligible credit amount. Eligible credit amount x 7.65% = FICA tip credit.