FICA tip credit (Section 45B)

FICA Tip Credit Calculator

Updated September 23, 2026 · Checked against primary sources

The formula

This is exactly what the calculator above computes.

shortfall     = max(0, (5.15 - cash wage per hour) x hours)
creditable    = max(0, tips - shortfall)
credit        = creditable x 7.65%
after tax     = credit x (1 - marginal income tax rate)
lookback      = credit x years

Worked example: 12 servers in a $2.13 state

1. 12 tipped employees, each working 120 hours and earning $2,400 in tips a month, at a $2.13 cash wage.
2. Per employee per month: $5.15 x 120 = $618 floor; cash wages $255.60; shortfall $362.40.
3. Creditable tips: $2,400 - $362.40 = $2,037.60. Credit: x 7.65% = $155.88.
4. Per employee per year: $1,870.52. For 12 employees: $22,446.20.
5. After the lost FICA deduction at a 24% marginal rate: $17,059.11.

Estimated credit: $22,446.20 a year for the location, before the deduction adjustment. Where cash wages are $5.15 or more (California, Washington), the same tips produce $26,438.40.

What this does not account for

• Form 8846 applies the test per employee, per month. This calculator uses annual averages, which overstates the credit when some employees or months fall below $5.15 an hour after tips.
• Tips paid after an employee passes the Social Security wage base ($176,100 in 2025, $184,500 in 2026) earn 1.45%, not 7.65%. Rare for servers, common for some bartenders and managers.
• Service charges and auto-gratuities are wages, not tips, and are excluded.
• The credit is nonrefundable: it only offsets income tax owed. Unused credit carries back 1 year and forward up to 20.
• Beauty businesses (tax years beginning after 2024) use a $7.25 floor, not $5.15.

Questions this calculator answers

• AnswerWhat is the FICA tip credit?The FICA tip credit, Section 45B of the tax code, is a federal income tax credit for food and beverage businesses equal to the 7.65% employe...
• AnswerHow is the FICA tip credit calculated?For each employee and each month, subtract the tips needed to lift cash wages to $5.15 an hour from total tips. The remainder is creditable ...
• AnswerCan you claim the FICA tip credit for past years?Yes. Form 8846 says you can claim the credit within 3 years from the due date of your return, on the original or an amended return. Sole pro...
• AnswerWhat is the difference between the FICA tip credit and the FLSA tip credit?They are unrelated. The FLSA tip credit is a wage rule: employers may pay a cash wage as low as $2.13 and count up to $5.12 of tips toward t...

Go deeper

• GuideFICA Tip Credit: Section 45B Guide for 2026The FICA tip credit returns 7.65% of most tips you pay payroll tax on. Who qualifies in 2026, what it is worth per location, and the IRS page that errs.
• GuideFICA Tip Credit Calculation: 7 Worked ExamplesHow to calculate the FICA tip credit: the $5.15 formula, seven worked examples with exact math, a Form 8846 roll-up, and the mistakes ranking guides make.
• GuideHow to Claim the FICA Tip Credit for Prior YearsMissed the FICA tip credit? Which years are still open in late 2026, how to amend with Form 8846 by entity type, and why the 90-day refund claim is a myth.

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Sources

1. IRS Form 8846 (2025) and instructions
2. 26 U.S. Code 45B
3. IRS: FICA Tip Credit for employers
4. SSA: Contribution and benefit base