What is FICA and how does it impact your business? Learn the basics of FICA payroll taxes, employer responsibilities and how to claim back overpaid FICA on tips.
If you operate a restaurant, café, bar or hospitality-based business and employ W-2 workers, your payroll obligations likely include contributions under the Federal Insurance Contributions Act (FICA).
FICA is a mandatory federal payroll tax that funds two cornerstone government programs: Social Security and Medicare. For employers, that means you're not only withholding these taxes from your employees' paychecks but also matching those amounts from your business funds.
While this might seem like routine payroll compliance, there’s more to FICA than just numbers and forms. If your food and beverage business operates in a tipped industry, you may be paying more in FICA taxes than necessary, and you might be eligible to get some of those funds back.
Understanding the basics of FICA isn’t just smart; it's essential. It could be the key to unlocking thousands of dollars your business has already handed over to the IRS.
FICA is a federal payroll tax that funds Social Security and Medicare, two government programs that provide retirement income, disability benefits and healthcare coverage for eligible individuals.
If your business employs W-2 workers, you're required legally to:
Typically, these taxes are reported and paid using Form 941, the employer’s quarterly federal tax return. Failing to withhold or submit FICA taxes accurately can result in penalties, so it’s a critical part of staying compliant with federal payroll laws.
Understanding the current FICA tax rates is a key part of managing payroll costs for your business.
For 2025, employers and employees each contribute the following:
This means that most employers are contributing 7.65% of each employee’s wages to FICA, which is matched by the same amount withheld from the employee’s paycheck.
If an employee earns $1,000 per week, your business pays $76.50 in FICA taxes, equal to the employee’s contribution. That’s $153 per pay period and nearly $40,000 a year if you have 10 full-time employees, making FICA one of the most significant ongoing tax obligations for employers.
Many employers are surprised to learn that tips are treated as taxable wages under FICA, even though they are paid directly by customers, not the business. However, for payroll tax purposes, tips are considered income, which makes them subject to both Social Security and Medicare taxes.
FICA taxes apply as soon as an employee reports their tips to the employer. This typically happens through the company’s point-of-sale (POS) system or a regular reporting process. Once reported:
This tax obligation occurs with every payroll cycle where tips are reported — regardless of whether those tips were paid in cash, on a card or pooled among employees.
Let’s say a server reports $200 in tips after a shift.
While this may seem minor on a per-shift basis, it adds up fast, especially in high-traffic restaurants, bars, cafés and hospitality environments where tips are a daily norm. Over the course of a year and across multiple employees, this can result in thousands of dollars in payroll taxes paid on tip income alone.
If you run a food and beverage business and pay FICA taxes on employee tips, you may be leaving thousands of dollars on the table each year, often without knowing it.
The FICA Tip Credit, established under IRS Code §45B, is designed to help qualifying food and beverage businesses recover the employer portion of payroll taxes paid on reported tips. These are taxes on money you haven't issued yet that are required to be matched through every payroll cycle.
Many employers overpay simply because they:
If you’re a food and beverage business and employ W-2 workers and you’re paying 7.65 percent in FICA taxes on that income, it’s likely your business is overpaying, especially in high-volume settings.
You likely qualify if:
Even small businesses and single-location operations may be eligible for this program. This credit is not just for large chains. We’ve helped independent restaurants, cafés, bars and food trucks reclaim tens of thousands of dollars in overpaid taxes.
Eligible businesses can:
Claiming the credit involves:
For many busy owners, this process can be time-consuming and easy to get wrong.
That’s where Anchor Accounting Services comes in.
We handle the entire FICA Tip process for you from the initial eligibility check and document collection to credit calculation, amended filing and IRS submission.
There’s no upfront cost; every filing includes audit protection, and your claim is reviewed by a team with extensive IRS experience.
FICA is nonnegotiable, but overpaying is.
If you’re in the food and beverage industry, you could be eligible to recover thousands in payroll taxes you’ve already paid. The FICA Tip Credit makes it possible, and Anchor Accounting makes it easy.
You’ve done your part by paying the taxes. Now let’s help you get some of that money back.
[Start your free prequalification here].
Yes. If you have W-2 employees, you must withhold and match FICA taxes even if you’re a small business or startup.
Some food and beverage employers may be eligible to reclaim FICA taxes. If you work in the food and beverage industry and pay FICA taxes on reported tipped wages, you may be eligible for the FICA Tip Credit, which allows businesses to recover overpaid taxes from the last three years.
The exact amount you can recover depends on your industry, the total amount of tips reported through payroll and the FICA taxes already paid. Many qualifying food and beverage businesses can claim back significant savings with minimal changes to operations.
You’ve already done the work, served the guests, paid the taxes and reported the tips.
Now, let our full-service FICA Tip Credit Program handle the rest. No upfront cost. No red tape. Just results.
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