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Learn how FICA taxes work, what they fund, and how employers especially in food & beverage can claim thousands in refunds using the FICA Tip Credit, even on past filings.
If you run a business and employ W-2 workers, you’ve probably seen “FICA” show up on your payroll forms and tax filings. You may even be familiar with the basics that it’s a federal payroll tax. But how does FICA work, really? And more importantly, how does it impact your responsibilities as an employer and your bottom line?
Understanding FICA is more than just a compliance checklist item. It’s a crucial piece of your tax landscape, directly tied to how much you owe the government in payroll taxes and, surprisingly, it can also open the door to major tax credits many businesses overlook entirely.
One of the most underutilized opportunities is the FICA Tip Credit, a powerful way for food and beverage businesses to get money back on taxes they’ve already paid without changing a single thing about how they operate.
Whether you're a restaurant owner, bar manager, or operate a hotel or coffee shop, you’re likely already paying more than you should.
Let’s change that, starting with the basics.
FICA stands for the Federal Insurance Contributions Act — a mandatory federal payroll tax that plays a vital role in funding two of the most important government programs in the U.S.: Social Security and Medicare.
As an employer, if you have W-2 employees, you’re legally obligated to withhold FICA taxes from your workers’ paychecks and contribute an equal amount from your own business funds. These taxes are not optional, and they apply to virtually every paycheck you issue.
FICA is made up of two parts:
For every dollar your employees earn, you’re paying a matching amount in FICA taxes. In most cases, your FICA obligation looks like this:
That means if an employee earns $50,000 per year, you’re contributing $3,825 out of your own pocket in FICA taxes per employee. Multiply that across your staff and pay periods, and the total can be significant.
Every time you run payroll, both you and your employee contribute a portion of their wages to the federal government. These taxes are reported quarterly on IRS Form 941 and paid either semi-weekly or monthly, depending on your deposit schedule.
Here’s a quick example:
If an employee earns $1,000 in a week:
That might not sound like much until you multiply it by dozens of employees, week after week, all year long.
If you operate in the food and beverage industry, you’re probably used to tips being a regular part of your employees’ income. But here’s the kicker that catches many employers off guard:
Even though you don’t directly pay those tips (your customers do), you’re still responsible for paying FICA taxes on them.
When a server earns $200 in tips during a shift, your business is required to treat that amount as wages for payroll tax purposes. So you pay your share of Social Security and Medicare taxes on income you never issued. The employee benefits from the tip, but you’re still on the hook for your 7.65% employer FICA contribution.
And over time? That bill adds up fast.
While restaurants are the most commonly affected, the reality is that many industries rely on tipped workers, and all of them face the same payroll tax burden. If you’re in any of the following sectors, the FICA tip rule applies to you too:
Restaurants and cafés – full-service dining, fast casual, and quick-serve
Coffee shops and bakeries – baristas who receive tips via jar or POS
Bars, pubs, breweries, and wineries – tipped bartenders, servers, and tasting room staff
Hotels, resorts, and spas – bellhops, valets, concierge staff, housekeepers
Casinos and entertainment venues – dealers, service staff, cocktail servers
Catering companies and food trucks – on-site staff collecting tips at events
Event venues and private clubs – banquet servers, coat check staff, and bartenders
Airport lounges and travel services – hospitality staff and food service employees
This is where things get exciting. The FICA Tip Credit (IRS Code §45B) lets businesses like restaurants, bars, coffee shops, and hotels claim back the employer portion of FICA taxes paid on employee-reported tips.
Many employers are shocked to learn this even exists and even more surprised at how much they’re eligible to reclaim.
You likely do if:
✅ You operate in food, beverage, or hospitality
✅ Your employees receive and report tips
✅ You pay FICA taxes on those tips
✅ Your employees are W-2 workers (not contractors)
Even better, you can go back 3 years to claim unclaimed credits, and carry unused amounts forward for future tax years.
Filing for the FICA Tip Credit can be a paperwork headache if you go it alone but with Anchor Accounting Services, it’s simple, compliant, and comes with no upfront cost.
Our team includes tax attorneys, former IRS execs, and credit experts who do everything:
You only pay if you get paid. That’s our promise.
Understanding how FICA works isn’t just about checking boxes for tax compliance, it’s about making sure your business isn’t leaving money on the table.
For many employers, especially in tipped industries like restaurants, bars, hotels, and entertainment venues, FICA taxes represent one of the most overlooked opportunities for savings. You’re already paying these taxes so why not take advantage of the credits the IRS offers to help lighten the load?
We’ve worked with countless businesses that had no idea this credit even existed until they uncovered thousands (sometimes tens of thousands) in refundable credits. That’s real money back into your business.
The best part? With Anchor Accounting Services, there’s no upfront cost, no confusing forms to deal with, and full support from IRS insiders who know the system inside and out. We handle everything from eligibility checks to filing and audit protection.
Let’s get your money back.
[Start My Free Eligibility Check]
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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