(IRS) Form 8846 instructions and example 2017/2018

How to receive credit for Employer Social Security and Medicare Taxes paid on employee’s tips?

It very common that in many companies that rely on services consisting in the provision, serving or delivery of food or beverages for consumption, e.g. restaurants, bars or hotels, the staff is rewarded through very different payment methods. In addition to the basic wage, they get for instance the percentage of meal value, service charge, tips and many other forms of compensation. Therefore, the settlement of waiters or bartenders’ remuneration is very difficult and complex, because different kind of compensations require different tax treatment. However, pursuant to the Fair Labor Standards Act, the employer, who has employees that earn tips for serving, delivering or providing food and drinks toward meeting the requirement of the minimum wage, and who paid or incurred Social security and Medicare taxes, may claim the credit for those taxes. In order to do so, it is necessary to fill out the form 8846.

What is form 8846?

The form 8846 is called Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips. It should be submitted as an appendix to the tax return. The amount of credit the employer can claim has to be carefully calculated on the basis of the amount of tips received and the employees’ wages received for work. Therefore, both employees and employers have to be very precise and accurate, when calculating the amount of tips received. Generally speaking, the employer can claim the amount of taxes they paid on tips, which are used to compensate for the employee’s minimum wage. The form can be downloaded for instance from the IRS website.

How to fill out form 8846?

Due to the fact that it is quite difficult to calculate the amounts that should be entered into the form 8846, many restaurant managers or bar owners actually resign from filling it out. As a result, they do not benefit from the credit they could get on employer social security and Medicare Taxes paid on certain employee tips. However, in addition to the form 8846 instructions included in the form itself, there are on-line calculators that can help them in computing the exact amounts that should be provided on the form.

So how the form should be filled out? In general, there are certain steps we have to follow in order to correctly calculate the amount of credit the employer can claim. First, we have to calculate the overall number of hours the employee worked in a year and multiply it by the hourly rate this employee receives. This is how we calculate the yearly wages of the employee. Then we should take the same amount of employee’s hours of work and multiply the hours the employer worked throughout the year by the minimum wage, which is USD 5.15, and we have the wages paid at a minimum wage. Of course the current minimum wage is a lot higher, but in 2007 such an amount was determined for calculation purposes, pursuant to Small Business Work Opportunity Act. Then we have all the numbers necessary to calculate the tax credit. From the amount of yearly wages we should subtract the amount of employee’s wages paid at a minimum wage and multiply it by the Federal Insurance Contributions Act tax, which is 7.65%. As a result, we will get a number that should be entered into line one of the form.  In the form 8846 Line 2, we have to provide the amount of tips, which are not subject to credit provisions. If the employer paid the employees’ wages amounting to or exceeding UDS 5.15, they should provide the amount zero here. However, if paid less than USD 5.15, then we should multiply USD 5.15 by the total number of employees’ hours of work, and subtract the wages (excluding tips) the employee received. The amount we should provide in Line 3 is very easy to figure out – we should only subtract line 2 from line 1. When it comes to the form 8846 Line 4, we should multiply the amount provided in line 3 by 7.65%. However, if there were tipped employees, whose amount of wages (excluding tips) was higher than USD 127,200, which is a social security tax wage base; another calculation has to be performed and attached to a separate form, because this is subject to 6.2% tax rate.

What is form 8846 due date?

The form 8846 should be submitted together with the tax return. However, there was not one date specified for all companies. Everything depends on individual circumstances.  However, when you have not submitted the form 8846 together with your tax return, either because you forgot about it or you didn’t know it was possible at the date of filing the return, you can still submit an amended return. According to the form 8846 instruction, you can either claim or elect not to claim the credit within three years from the due date of the tax return.

When did form 8846 start?

The form 8846 has been first launched in 1993. Since then, there have been a few revisions of the form, and as a result it is more employer-friendly, since not so many fields have to be completed. The first form included as many as fourteen lines, whereas in the latest 2017 version, there are only six.

Form 8846 example:





  1. Shoki216

    Oh, I see that the author of the article really knows what he is talking about. Everything is described perfectly, applause! Form instruction is not a simply issue.

  2. F11

    Oh my god. I used this as one of the sources to my homework in college (of course it was my work also, the topic was even broader). I do not know what grade I will get for it, but the lecturer was satisfied, and he did not report any issues. There is all I needed about this formula, really great instruction.


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