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M
Micibug
Level 3
October 9, 2025
Question

Tips Credit and Payroll Taxes on Schedule C

  • October 9, 2025
  • 1 reply
  • 8 views

I'm doing a 2024 tax return for a client who owns a restaurant. It is currently a sole proprietorship so the business activity is on Schedule C. The W3 shows $275,908.15 in tips which qualify for the tips credit of $29k (some is a carryforward from a prior year). Do I have to manually reduce the employer payroll taxes deducted on Schedule C by this amount? 

1 reply

J
johnsmith1
Level 3
December 3, 2025

You don’t manually reduce the employer payroll tax expense on Schedule C for the FICA tip credit. The credit is a general business credit, but under IRC §280C you must reduce the wage deduction (or increase income) by the amount of the credit claimed, not the payroll tax line itself. Most tax software handles this automatically when Form 8846 flows to the return. In practice (and what we double-check at [Content Removed] ) is that the wages/COGS are adjusted correctly—not the employer tax expense.

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