FICA tip credit (Section 45B)
What is the difference between the FICA tip credit and the FLSA tip credit?
Updated · Checked against primary sources
The short answer
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 the $7.25 federal minimum wage. The FICA tip credit is an income tax credit for the 7.65% employer payroll tax paid on tips. A restaurant in a state that bans the FLSA tip credit still gets the FICA credit, often a larger one.
Key takeaways
- FLSA tip credit: Department of Labor, wages. FICA tip credit: IRS, income tax.
- Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington do not allow an FLSA tip credit (DOL).
- Restaurants in those states can still claim the FICA tip credit on all reported tips.
Side by side
Accountants have told owners who pay above minimum wage that they do not qualify for the FICA credit. That is backwards: a higher cash wage raises the creditable share.
| FLSA tip credit | FICA tip credit | |
|---|---|---|
| Law | Fair Labor Standards Act, 29 U.S.C. 203(m) | Internal Revenue Code 45B |
| Agency | Department of Labor | IRS |
| What it does | Lowers the cash wage you must pay | Credits income tax for FICA paid on tips |
| Key number | $2.13 cash wage, up to $5.12 tip credit | 7.65% of tips above the $5.15/hr floor |
| Where it is claimed | Payroll practice, no form | Form 8846 |
Frequently asked questions
- Can I use both?
- Yes. Most restaurants in states that allow the FLSA tip credit use both: they pay a tipped cash wage, and claim the FICA tip credit on tips above the $5.15 floor.
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Request a free leak scanRelated questions
- Tip creditWhat is the FICA tip credit?
- Tip creditHow is the FICA tip credit calculated?
- Tip creditCan you claim the FICA tip credit for past years?
- Tip creditDoes "no tax on tips" change the FICA tip credit?
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
- FLSA tip credit
- A minimum-wage rule, not a tax credit: employers may pay tipped staff a cash wage as low as $2.13 and count up to $5.12 of tips toward the $7.25 federal minimum. Several states, including California and Washington, do not allow it.
- 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
- US DOL Fact Sheet 15: Tipped employees under the FLSA
- US DOL: State minimum wages for tipped employees
- IRS Form 8846 (2025) and instructions
Cite this page
Pavado, “What is the difference between the FICA tip credit and the FLSA tip credit?”, https://www.pavadotech.com/restaurants/questions/fica-tip-credit-vs-flsa-tip-credit, updated 2026-09-23.