This week’s question comes from Hillary, a restaurant manager. I know the federal minimum wage increased to $7.25 last week. How does the increase in the minimum wage affect the tip credit? Answer: Under §45B of the Internal Revenue Code of 1986 (IRC), employers are allowed a credit for the employer portion of social security taxes (sometimes known as FICA tax or OASDI or Medicare) to the extent the tips claimed plus the cash wages paid exceeds the federal minimum wage. The credit is currently 7.65% of the excess amount and is claimed on Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips. Pursuant to IRC §45B(b)(1)(B), the minimum wage to be used in calculating the credit is the minimum wage in effect as of January 1, 2007 ($5.15). Therefore, the recent increase in the minimum wage does not affect the credit calculation. Vision Payroll can assist restaurants and other eligible employers in calculating the amount of tips eligible for the credit. Contact Vision Payroll if you need further information on the tip credit.