Food and beverage employers should note rule changes for 45B credit

The IRS has issued an announcement to employers that they should be aware of two changes to the credit for the portion of employer Social Security paid with respect to employee cash tips known as the 45B Credit. These changes are the result of recently enacted legislation.

The law now requires employers to determine their credit using the minimum wage in effect on January 1, 2007, even if the minimum wage increases. Therefore, in 2007, when the federal minimum wage did increase to $5.85 from $5.15 per hour, employers will still use the $5.15 rate to determine their credit to compute their allowable credit for tips reported for services performed after Dec. 31, 2006.

The 45B Credit allows employers in the food and beverage industry to claim a credit for the Social Security and Medicare taxes the employers pay on their employees' tip income. The credit equals the Social Security and Medicare taxes the employer paid on the tips received by the employees. However, no credit is given for tips used to meet the federal minimum wage rate.

Employers claiming the credit must reduce their Social Security and Medicare tax deduction accordingly. Eligible employers should use Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips, to claim the credit.

The new law also allows the employer to use the 45B credit to offset alternative minimum tax. Previously, the credit could only be used against the regular tax. This offset is available for 45B credits for taxable years beginning after Dec. 31, 2006.

For more information, see Credit for Portion of Employer Social Security Paid with Respect to Employee Cash Tips (IRC 45 B Credit) on the IRS Web site.

You may like these other stories...

A new report released on Tuesday found that the US airline industry receives nearly $1 billion in tax breaks annually from states for jet fuel.The study, conducted by UNITE HERE International Union, a labor union that...
Boehner, Camp profit from corporate bid to avoid US taxesRichard Rubin of Bloomberg reported on Tuesday that House Speaker John Boehner (R-OH) and House Ways and Means Committee Chairman Dave Camp (R-MI) profited from a...
The Republican civil war on taxes is comingA specter is haunting the Republican Party – the specter of Ronald Reagan’s tax cuts, Matt O’Brien of Washington Post Wongblog wrote on Friday.For the last 35...

Already a member? log in here.

Upcoming CPE Webinars

Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.
Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Sep 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.
Sep 26
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.