FICA tip credit (Section 45B)
Does "no tax on tips" change the FICA tip credit?
Updated · Checked against primary sources
The short answer
Not for restaurants. The 2025 "no tax on tips" provision is an income tax deduction for employees, up to $25,000 a year for 2025 through 2028, phasing out above $150,000 of income ($300,000 joint). Tips remain subject to FICA, so employers still pay FICA on them and can still claim the FICA tip credit. The same law extended the credit to beauty businesses.
Key takeaways
- No tax on tips (IRC 224) is a chapter 1 income tax deduction; FICA treatment of tips did not change.
- Employers still pay 7.65% on tips, so the 45B credit still applies.
- New for tax years beginning after 2024: barbering, hair, nail, esthetics and spa services qualify, with a $7.25 floor.
What the law changed and what it did not
The deduction reduces an employee's federal income tax on qualified tips (IRS). It does not exempt tips from Social Security and Medicare tax. That is a statutory reading of IRC 224 and 3121(q); the IRS pages we checked do not state it in one sentence, so confirm with a preparer.
Frequently asked questions
- Does reporting more tips now help the employer?
- If employees report tips more fully because of the deduction, the employer pays FICA on more tips, and the FICA tip credit on those tips rises with it.
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Request a free leak scanRelated questions
- Tip creditWhat is the FICA tip credit?
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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.
Terms on this page
- Section 45B
- The Internal Revenue Code section that creates the FICA tip credit: a federal income tax credit for the employer share of Social Security and Medicare tax paid on employee tips above the $5.15 per hour floor.
Sources
- IRS: One Big Beautiful Bill Act tax deductions for working Americans
- IRS Form 8846 (2025) and instructions
- 26 U.S. Code 45B (Cornell LII)
- IRS Notice 2025-69
Cite this page
Pavado, “Does "no tax on tips" change the FICA tip credit?”, https://www.pavadotech.com/restaurants/questions/does-no-tax-on-tips-change-the-fica-tip-credit, updated 2026-09-23.