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The Online Advisor

October 2007

New Business

Employer's tip credit isn't reduced


As of July 24, 2007, the new federal minimum wage increased from $5.15 an hour to $5.85. By the summer of 2009, the minimum wage will increase to $7.25 an hour.

Employers can claim a credit for their payments of FICA taxes paid on tips that exceed the portion of tips treated as part of the minimum wage. This credit will continue to be based on the old $5.15 wage even though the actual minimum wage increases. Allowing employers to continue using the old lower minimum wage to compute this credit means their tip credit will not be reduced as the minimum wage increases. This rule applies to tips received for services performed after December 31, 2006.

Before you invest in any business, it's always a good idea to discuss the proposed venture with your advisors. If you would like assistance with evaluating a business opportunity or with legitimate tax planning, please call our office.

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