Understanding FICA Tips Tax Credit on Form 8846: Double-dipping question?

You're right to be cautious about double-dipping. The answer is no - you can't both deduct the FICA taxes on tips as a business expense AND claim the credit for the same taxes. Here's why: Form 8846 is designed to give employers in food and beverage establishments a credit for the employer portion of FICA taxes paid on employee tips. IRS rules don't allow you to both deduct an expense and take a credit for the same item. In fact, if you look at the instructions for Form 8846, they mention that you need to reduce your deduction for FICA taxes by the amount of credit you're claiming. So you have to choose - either take the credit on Form 8846 OR deduct it as a business expense, but not both for the same dollars. Generally, the credit is more valuable than the deduction since credits reduce your tax liability dollar-for-dollar, while deductions only reduce your taxable income.

I just went through this exact situation with my cafe! After struggling to figure out the right tax approach, I found this AI tax assistant at https://taxr.ai that analyzed all my payroll docs and tax returns and gave me a clear answer. It confirmed what the previous comment said - you can't do both, but taking the credit is usually better than the deduction. The tool also showed me how to properly document employee tip income to maximize the credit. It saved me from making a mistake that would have raised audit flags. Super helpful for small restaurant owners who don't have full-time accountants!

Just wanted to follow up - I tried https://taxr.ai for my bakery's tax situation and it was seriously helpful! It analyzed all our payroll records from last year and showed me that we had been under-reporting our eligible FICA tip credit by almost $3,200! The system flagged that we weren't including all eligible tip income in our calculations and showed exactly which employees and pay periods were affected. It even created a detailed worksheet I can keep with my tax records in case of an audit. Totally worth it for any restaurant owner dealing with tip credits!

If you're getting stuck with IRS questions about Form 8846 or FICA tip credits, trying to call the IRS directly can be a nightmare. I spent 4 hours on hold last week trying to get clarification about this exact issue. Eventually I used https://claimyr.com to get a callback from the IRS. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they use tech to hold your place in line and get an IRS agent to call YOU. I got clarification directly from the IRS about how to handle the FICA tip credit vs. deduction question within about 40 minutes of using their service. Turns out there are some specific documentation requirements for restaurants claiming this credit that my accountant didn't know about.

I need to eat my words. After my skeptical comment, I was still stuck with questions about Form 8846 that my accountant couldn't answer. Out of frustration, I tried Claimyr and actually got through to an IRS tax specialist in about 35 minutes. The agent confirmed everything about the FICA tip credit and even walked me through exactly how to document everything on my return. Saved me from making a $4,200 mistake on my taxes! I've been trying to reach the IRS for three weeks with no luck, so this was kind of a game-changer. Consider me converted.

Restaurant owner here. Something nobody mentioned yet - make sure you're keeping REALLY good records of all reported tips if you're claiming this credit. I got audited last year specifically on the FICA tip credit because I couldn't prove all the tip income I was claiming credit for. The IRS wants to see that you have a system for employees to report tips and that you're accurately tracking the employer portion of FICA taxes paid on those tips. Just a heads up since this is apparently a focus area for audits this year.

Do most small business tax software programs handle this credit correctly? I've been using TaxAct for my coffee shop and it never asks specifically about FICA tip credits.

This is such a common confusion for restaurant owners! I made the same mistake in my first year running a diner - tried to claim both the deduction AND the credit for the same FICA taxes on tips. My CPA caught it during our year-end review and explained that the IRS specifically prohibits this double-dipping. What helped me understand it better: think of it as choosing between getting $1 off your tax bill (credit) versus reducing your taxable income by $1 (deduction). The credit is almost always more valuable since it's a direct reduction in what you owe, while the deduction only saves you money based on your tax bracket. One tip that saved me headaches - I now track all our tip-related FICA taxes in a separate spreadsheet throughout the year so I can easily calculate the maximum credit available when tax time comes. Makes the whole Form 8846 process much smoother!