Section references are to the Internal Revenue Code.
For the latest information about developments related to Form 8846 and its instructions, such as legislation enacted after they were published, go to www.irs.gov/form8846.
Purpose of Form
Certain food and beverage establishments (see Who Should File, below) use Form 8846 to claim a credit for social security and Medicare taxes paid or incurred by the employer on certain employees’ tips. The credit is part of the general business credit.
You can claim or elect not to claim the credit any time within 3 years from the due date of your return on either your original return or on an amended return.
Taxpayers, other than partnerships or S corporations, whose only source of this credit is from those pass-through entities, are not required to complete or file this form. Instead, report this credit directly on the applicable line of Form 3800, General Business Credit.
For information regarding taxes imposed on tips, including information on the difference between tips and service charges, see Rev. Rul. 2012-18, 2012-26 I.R.B. at www.irs.gov/irb/2012-26.
Who Should File
File Form 8846 if you meet both of the following conditions.
1. You had employees who received tips from customers for providing, delivering, or serving food or beverages for consumption if tipping of employees for delivering or serving food or beverages is customary.
2. During the tax year, you paid or incurred employer social security and Medicare taxes on those tips.
How the Credit Is Figured
Generally, the credit equals the amount of employer social security and Medicare taxes paid or incurred by the employer on tips received by the employee. However, the amount of tips for any month that are used to figure the credit must be reduced by the amount by which the wages that would have been payable during that month at $5.15 an hour exceed the wages (excluding tips) paid by the employer during that month.
For example, an employee worked 100 hours and received $450 in tips for October 2013. The worker received $375 in wages (excluding tips) at the rate of $3.75 an hour. If the employee had been paid $5.15 an hour, the employee would have received wages, excluding tips, of $515. For credit purposes, the $450 in tips is reduced by $140 (the difference between $515 and $375), and only $310 of the employee’s tips for October 2013 is taken into account.
For tax years beginning after December 31, 2012, a 0.9% Additional Medicare Tax applies to Medicare wages. However, Additional Medicare Tax is only imposed on the employee. There is no employer share of Additional Medicare Tax. Thus, there is no effect on the credit for employer social security and Medicare taxes on certain employee tips.