How to Claim FICA When Doing Income Taxes
Small business such as restaurants and coffee shops hire employees who are tipped. If you are running such a business, you may be entitled for a tax credit in order to help you recoup the Social Security and Medicare (FICA) tax that you had to pay against the total amount of tips that your employees received from the customers. Calculating FICA should be simple because you will just need to do a few quick calculations after gathering the required data. Here is how you can claim FICA when doing income taxes.
Instructions
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1
Instruct all of your tipped employees to fill out their W-2 form and handover the employer’s copy to you.
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2
According to Small Business Work Opportunity Act of 2007, the federal minimum wage computation rate for each tipped employee was to be $5.15 for each hour worked. Scrutinise each tipped employee’s W-2 individually and determine if the tips of that employee exceeds the federal minimum wage computation rate or not. For the current computation rate, refer to the instructions written on the IRS Form 8846. Divide the total tips earned by a particular employee over a year by the total number of hours worked by that employee. This will give you the employee’s average tipped wages for each hour worked. Simply sum up the average tipped wages and the hourly wages. For example: $4.13 per hour + $12 = $16.13.
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3
Calculate the difference between the employee’s average tipped wages for each hour worked and the computation rate. For instance, if the computation rate is $5.15, the difference will be $16.13 - $5.15 = $10.98. This is the amount which is eligible for FICA credit.
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4
In order to calculate the total FICA amount, simply multiply the amount from Step 3 by the FICA rate. For instance, if the FICA rate is 7.65%, the total FICA amount will be $10.98 × 7.65% = $0.84. This means that you will be awarded a credit of 84 cents for each hour that the employee worked.
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5
Calculate the total amount that you need to claim from the employee by multiplying the result from Step 4 by the total number of hours worked by the employee during that year.
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6
Repeat Steps 2 to 5 for all the tipped employees that you have on your pay roll. Sum up the credit amount and write it down on the IRS Form 8846.
 tax that you had to pay against the total amount of tips that your employees received from the customers. Calculating FICA should be simple because you will just need to do a few quick calculations after gathering the required data. Here is how you can claim FICA when doing income taxes.Next%20stop%3A%20Pinterest "Pin It")
