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Background:
- On May 25th, President Bush signed into law, Public Law 110-28, which included the provisions of the Small Business and Work Opportunity Act of 2007, a $4.84 Billion package of small business incentives
- The legislation affects the Credit for Portion of Employer Social Security Paid with Respect to Employee Cash Tips (45B Credit)
- The 45B Credit allows employers in the food and beverage industry to claim a credit for the social security and Medicare taxes the employer pays on its employees' tip income
- The credit equals the social security and Medicare taxes the employer paid on the tips reported by employees to the employer. However, no credit is given for tips used to meet the federal minimum wage rate
- If an employer claims the credit, the employer must reduce their social security and Medicare tax deduction accordingly
Changes:
- Section 8213 states that employers should determined their credit using the minimum wage in effect on January 1, 2007 even if the minimum wage increases. Therefore, in 2007, when the federal minimum wage did increase from $5.15/hr to $5.85/hr, employers will still use the $5.15 rate to determine their credit for tips after December 31, 2006.
- Section 8214 allows the employer to use the 45B credit to offset alternative minimum tax. This offset is available for 45B credits for taxable years beginning after December 31, 2006. Previously, the credit could only be used against the regular tax.
Additional Information:
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