Form 8846 lets an employer claim a credit for the employer share of Social Security and Medicare taxes it paid on employees' tips. Food and beverage businesses where tipping is customary qualify, and for tax years beginning after 2024 the credit also covers barbering and hair care, nail care, esthetics, and body and spa businesses. The credit is generally 7.65% of creditable tips.
Everything below comes from the IRS Form 8846 for 2025 and its instructions, as of October 2026.
Who can claim it
File Form 8846 if both of these are true:
- Your employees received tips from customers for providing, delivering or serving food or beverages where tipping for that is customary, or for barbering and hair care, nail care, esthetics, or body and spa treatments where tipping for that is customary.
- During the tax year, you paid or incurred employer Social Security and Medicare taxes on those tips.
This is the change most salon and spa owners haven't caught up with. The 2025 instructions extend the credit to beauty service businesses for the first time, so a salon that has paid employer tax on reported tips for years can now claim this credit for tax years beginning after 2024.
The minimum wage cut
You can't claim the credit on tips used to bring an employee up to the federal minimum wage. The rate used depends on the business:
| Business | Wage used for the cut | Line 2 |
|---|---|---|
| Food or beverage | $5.15 an hour, the federal minimum wage in effect on January 1, 2007 | Zero if you pay at least $5.15 an hour in wages, not counting tips |
| Beauty services | $7.25 an hour, the federal minimum wage now in effect | Zero if you pay at least $7.25 an hour in wages, not counting tips |
The cut is worked out per employee, month by month. The instructions' example: a food or beverage worker put in 100 hours in October 2025, received $450 in tips and was paid $375 in wages at $3.75 an hour. At $5.15 an hour the wages would have been $515, so the tips are reduced by $140, and only $310 of tips count for that month.
Working out the credit
- Line 1: tips received by employees for services on which you paid or incurred employer Social Security and Medicare taxes.
- Line 2: the tips that aren't creditable because of the minimum wage cut, totalled for all employees.
- Line 3: line 1 minus line 2, the creditable tips.
- Line 4: line 3 times 7.65%.
- Line 5: any credit passed through from partnerships and S corporations.
- Line 6: the total, which goes to Form 3800, Part III, line 4f (partnerships and S corporations report it on Schedule K).
Employees above the wage base
If any tipped employee's wages and tips went over the 2025 Social Security wage base of $176,100, tick the box on line 4 and attach a computation. Tips above the base only carry the 1.45% Medicare rate, so you multiply the tips under the base by 0.0765 and the tips above it by 0.0145. For fiscal years, the 2026 wage base of $184,500 applies to wages paid in 2026. The 0.9% Additional Medicare Tax is only imposed on the employee, so it doesn't affect the credit.
Things to know before you claim
- The credit is part of the general business credit, so it's claimed through Form 3800.
- You must reduce your income tax deduction for employer Social Security and Medicare taxes by the line 4 amount.
- You can claim or elect not to claim the credit at any time within 3 years from your return's due date, on an original or an amended return.
- Partnerships and S corporations must file the form; partners and shareholders whose only source is a pass-through report the credit directly on Form 3800.
- Revenue Ruling 2012-18 explains the difference between tips and service charges, which matters because a service charge isn't a tip.
Because the credit is figured on tips you paid employer tax on during the tax year, a tip that was never reported to you never reaches line 1, however customary tipping is in your business, so it pays to encourage complete monthly tip reporting from every tipped employee.
The credit depends on employees reporting their tips. Their monthly reports, and the tax on any they didn't report on Form 4137, are the other side of the same numbers.
Records that support the claim
Line 1 is built from the tips your employees reported to you and on which you paid or incurred employer tax, so the monthly tip reports and payroll records are the evidence. Keep the per-employee, per-month minimum wage calculations behind line 2 too: the instructions say to figure the non-creditable tips for each employee on a monthly basis, and that's the figure the IRS would ask you to show. Where you add a service charge to bills, check Revenue Ruling 2012-18 before counting it, because only tips go on this form. A business with both a restaurant and a spa uses the $5.15 rate for the food and beverage staff and $7.25 for the beauty staff.
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The verdict
If you run a restaurant, bar, cafe, salon, barbershop, nail bar or spa and pay employer tax on reported tips, check Form 8846 every year. Beauty businesses should look back at 2025 now: it's the first year they qualify, and the 3-year window means an amended return can still pick it up.
Large food and beverage establishments also report tips on another form, covered in our tip reporting guide.
Frequently asked questions
What is Form 8846?
It's the form employers use to claim a credit for employer Social Security and Medicare taxes paid on certain employees' tips.
Can salons claim the FICA tip credit?
Yes, for tax years beginning after 2024. The credit was extended to barbering and hair care, nail care, esthetics, and body and spa treatment businesses.
How is the Form 8846 credit calculated?
Creditable tips, after the minimum wage cut, are multiplied by 7.65%, with a separate calculation for tips above the Social Security wage base.
What minimum wage is used for Form 8846?
$5.15 an hour for food and beverage employers and $7.25 an hour for beauty service employers.
What is the time limit to claim the tip credit?
You can claim or elect not to claim it within 3 years from the due date of your return, on an original or amended return.
