ERC, Are Tips Qualified Wages for Employee Retention Credit?

Jun 9, 2023 | Affiliates

In ERC, are tips qualified wages for employee retention credit?

Yes, tips can be considered qualified wages for the Employee Retention Credit (ERC) under certain conditions. The ERC is a tax credit provided to eligible businesses that retained employees during the COVID-19 pandemic.

To determine if tips qualify as wages for the ERC, consider the following:

  1. Eligibility Criteria: To be eligible for the ERC, businesses must meet specific criteria. For example, as experiencing a significant decline in gross receipts. Another example is being subject to a full or partial suspension of operations due to government orders related to COVID-19.
  2. Qualified Wages: Qualified wages, which are used to calculate the ERC, include certain types of compensation paid to employees. Generally, for businesses with over 100 full-time employees, qualified wages are limited to wages paid to employees who were not providing services. This is due to a full or partial suspension of operations or experiencing a significant decline in gross receipts. However, for businesses with 100 or fewer full-time employees, qualified wages can include all wages paid during the eligible period.
  3. Tips as Qualified Wages: Tips can be considered qualified wages for the ERC if they meet the eligibility criteria. And if they are subject to payroll taxes. If your business includes tips as part of employees’ wages and reports them for payroll tax purposes, those tips can be included in the calculation of qualified wages for the ERC.
  4. Aggregation of Wages: When calculating the ERC, you can aggregate qualified wages across all eligible quarters. This means that if tips are part of the qualified wages in any of the eligible quarters, they can be included in the overall calculation of the credit.

We’re happy to help

We hope you learned a lot regarding qualified wages for employee retention credit. It is important to consult with a tax professional. Or refer to IRS guidance for specific details and requirements regarding the inclusion of tips as qualified wages for the ERC. They can provide personalized advice based on your business’s unique circumstances and help ensure accurate and compliant calculations for the credit. Want to work with one of our ERC Specialists? Fill out the form today or click here to apply for your Employee Tax Credit.

Don’t hesitate to contact us if you need help!

DISCLAIMER: Please note that some of Advantage Insurance Solutions’ articles may have affiliate links from the Amazon Associates Program, with no additional charge to the reader. Before we publish a review, we utilize and evaluate the products we recommend. In addition to the products we’ve personally tested, we’ve received recommendations from many of our readers. That said, we want to make sure it is clear that if you use our links to purchase something, we will receive a small compensation from it. Thank you.