Kendrick wrote:Thanks. This helps. But I am a bit confused. If the government is reimbursing the employer for the employer's payment of Social Security and Medicare on tips, then this means the government is essentially funding the Social Security and Medicare buckets of tipped employees (where a tip credit has been taken). Sounds like a lot of money.
there are two tip credits:
The DOL version which says states can allow you to pay certain employees less than minimum wage. The employer receives a tip credit to make that happen. The employee must receive enough tips to get back to minimum wage or the employer foots the difference.
Then there is the income tax tip credit via 8846 which is mostly unrelated. Since the employer isn't receiving any money (it all goes to the employee), the government credits that tax back to the employer. So the government isn't really funding it so much as they are giving the employer their portion of the money back as credit (and taxing them on it by reducing their payroll tax deduction).
However, these are related in the sense that when an employer takes a tip credit to pay below minimum wage, those are ineligible wages for the income tax tip credit.
I hate that it's the same terminology.