Our salon receives employee tips. Is the employer FICA tip credit still limited to food and beverage businesses?
The employer FICA tip credit is no longer limited to food and beverage services for the applicable years.
By AE Tax Advisors Team · Updated October 29, 2026
The employer FICA tip credit is no longer limited to food and beverage services for the applicable years. Section 45B now includes specified beauty-service businesses, subject to its conditions. Eligibility depends on the actual services and tips, not merely using salon in the business name. This credit remains separate from an employee's personal tip deduction.
A specific business-owner situation
A salon pays employer FICA on qualifying customer tips. The preparer must check the expanded statutory service categories rather than reject the credit using an older restaurant-only checklist.
Illustrative example, not a client result.
What to establish before filing
- Identify the specific beauty services.
- Separate voluntary tips from service charges.
- Compute qualifying employer taxes and required deduction adjustments.
Which fact changes the answer?
Qualifying barbering, hair, nail and other specified services differ from unrelated product sales or unlisted activities. Mixed businesses need a supported breakdown.
A mistake to avoid
Do not assume every wellness or retail business falls within the enumerated beauty services.
Records that support the decision
- Service menu.
- Employee tip and wage records.
- Form 8846 calculation.
The decision to document
Evaluate the applicable-year credit with the current statute and form instructions, then coordinate the employer tax deduction.
Business-owner tax planning and preparation scope · Discuss advisory scope with AE
Related questions
Sources and editorial context
- IRS Publication 15: employment taxes and tips
- IRS Publication 531: tip reporting
- Section 45B: credit for employer taxes on tips
- IRS Form 8846 instructions: employer tip credit
General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.