Calculating Tip Credit
This topic describes calculating tip credit.
The tip credit is calculated as follows when computing payroll:
# TCR * MW * SH = TC
where:
- TC = Tip Credit
- TCR = Tip Credit Rate from the Tax Code Exempt form
- MW = Minimum Wage from the Tax Code Exempt form
- SH = Sum of all the regular, overtime and double-time hours
Hourly Minimum Wage = $4.25
Tip Credit Rate = 50%
Employee Hours = 50 (40 regular hrs + 10 overtime hrs)
Average Employee Regular Hourly Wage = $2.50
Employee Overtime Hourly Wage = $3.75
Employee Tips = $110.00
Paid employee wages = $137.50
Regular Wages: 2.50 * 40 = $100.00
Overtime Wages: 3.75 * 10 = $37.50
Employee Gross Wages = $247.50
(137.50 paid wages + 110 tips)
Max Tip Credit = $106.25
(50 hrs * 4.25 min wage * 0.50 tip credit rate)
which is less than the employee tips of $110.00.
Gross Wages for employer FICA and Medicare taxes = $141.25
(247.50 Employee gross wages - 106.25 tip credit)