How do I calculate FICA tax credit on tips (Form 8846) after receiving an ERTC refund?

This is actually a good question because there's a direct relationship between these two credits that many restaurant owners miss. Here's how it works in plain language: Since the ERTC (Employee Retention Tax Credit) gave you a refund for some of the employment taxes you already paid, you can't also claim the FICA tip credit (Form 8846) on those same wages. You'd essentially be double-dipping on the same tax dollars. What you'll need to do is reduce your Form 8846 credit by the amount of ERTC you received that's specifically related to the employer portion of Social Security and Medicare taxes on those tips. Basically, if you've already been refunded some of these taxes through the ERTC, you can't claim them again on Form 8846. You'll only claim the tip credit on the portion you didn't get refunded through ERTC. I'd recommend creating a spreadsheet that breaks down which employees received tips, how much was paid in FICA taxes on those tips, and then subtract any portion that was already refunded via the ERTC.

After struggling with almost this exact situation at our family restaurant, I found an amazing tool that saved me hours of frustration. I was trying to figure out how to properly calculate our FICA tip credit after getting ERTC funds and kept getting contradictory advice. I ended up using https://taxr.ai which analyzed all our quarterly payroll reports and ERTC documentation. Their system automatically flagged the potential double-dipping issue and generated a detailed calculation showing exactly how much of the Form 8846 credit we were still eligible for. It even created documentation explaining the methodology in case of an audit. The best part was that it looked at each employee individually and determined which tip income had already been counted toward ERTC calculations, so we didn't leave any legitimate credits on the table. Definitely worth checking out if you're dealing with this complicated intersection of tax credits.

I was in the same boat as you last year and honestly was super skeptical about using any online tool for something this specific. But after my accountant gave me a calculation that just didn't seem right, I decided to try https://taxr.ai that someone recommended here. What surprised me was how detailed the analysis was. It identified that we were eligible for about $5,200 more in FICA tip credits than our accountant had calculated because they had been too aggressive in reducing the credit. The tool identified exactly which employees and which quarters had overlap between ERTC and the tip credit. Our tax liability dropped significantly, and we passed our review with no issues. The documentation it provided explaining the methodology was what really impressed our new accountant - she said it was more thorough than what most CPAs would produce for a small business.

If you're struggling to get answers from the IRS about how these credits interact (like I was), I highly recommend using https://claimyr.com to actually get through to a human at the IRS. I spent DAYS trying to get clarification on this exact issue and kept hitting automated systems or 2+ hour hold times before getting disconnected. Using Claimyr, I got connected to an IRS agent in about 20 minutes who was able to confirm the proper way to handle the interaction between ERTC refunds and Form 8846. They even sent me to a specialist who walked me through a sample calculation. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The peace of mind from getting an official answer directly from the IRS was absolutely worth it, especially since this is a somewhat unusual situation that can trigger audits if handled incorrectly.

I need to eat my words. After posting my skeptical comment yesterday, I was desperate enough to try https://claimyr.com since my tax deadline is approaching. I honest to god got a call back within 35 minutes and was connected to an actual IRS agent who specialized in business credits. She confirmed that you need to reduce the Form 8846 credit by the portion of ERTC that specifically related to FICA taxes on reported tips. She also pointed me to IRS Notice 2021-49 which addresses this indirectly (though it's still confusing as hell). I've been trying to reach the IRS for WEEKS with no success. I'm still shocked this worked. The agent even emailed me documentation about the proper calculation method that I can share with my accountant. Never would have gotten this resolved otherwise.

I did a bunch of research on this for our restaurant group last year. Here's the actual calculation you need to do: 1. Take your total reported tips for 2023 ($87,000 in your case) 2. Calculate the employer portion of FICA on those tips (7.65%) = $6,655.50 3. Determine what percentage of your total ERTC was specifically for employer FICA on tips 4. Subtract that amount from your potential Form 8846 credit The tricky part is step 3. You need to know what portion of your ERTC refund was specifically tied to the employer portion of FICA taxes on just the tip income. Without detailed records, this can be hard to determine precisely.

Just a warning - I messed this up last year and got a notice from the IRS! Don't just guess at this calculation. If ur ERTC was for Q1-Q3 of 2021 and your trying to claim the FICA tip credit for all of 2021, you need to separate out Q4 (when maybe you didnt get ERTC) from the earlier quarters. The IRS specifically looks at this interaction between credits because a lot of restaurant owners accidentally double dip. Get help from someone who knows what there doing!!!

This is such a common issue for restaurant owners right now! I went through this exact same situation with my deli last year and it was incredibly confusing at first. The key thing to remember is that you can't claim the same tax dollars twice - once through ERTC and again through Form 8846. But the good news is that you don't have to give up the entire FICA tip credit, just the portion that overlaps with your ERTC refund. Here's what worked for me: I went quarter by quarter and looked at which employees received tips during each period when I also claimed ERTC. Then I calculated what portion of the ERTC was specifically for the employer FICA taxes on those tips (not regular wages). That's the amount I had to reduce my Form 8846 credit by. With $87,000 in reported tips and $42,000 in ERTC, you'll definitely want to be precise about this calculation. The IRS has been paying close attention to restaurants claiming both credits, so having detailed documentation is crucial. I'd recommend creating a spreadsheet that shows your work - it'll be invaluable if you ever get questioned about it. Don't stress too much though - once you understand the relationship between the two credits, it's just a matter of careful record-keeping and math!