Tax Credits Every Restaurant Owner Should Know
Running a restaurant means managing tight margins, rising labor costs, and constant operational pressure. The good news? Several federal tax credits are available that can help restaurant owners reduce their federal tax liability. Below are some of the most common and valuable credits restaurant owners should be aware of.
Tip Credit
If your restaurant has tipped employees, you may be eligible for a tax credit on the wages paid to those employees.
What it is: Restaurants can claim a credit for the employer portion of FICA taxes (Social Security and Medicare) paid on reported tips above a minimum wage threshold. This credit can generate meaningful annual savings for restaurants with consistent tip volume, especially full-service operations.
Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit is designed to encourage hiring individuals from certain targeted groups, such as qualified veterans or individuals receiving certain public assistance.
What it is: A federal tax credit based on qualified first-year wages paid to eligible employees. The credit is generally up to 40% of qualified wages, subject to wage caps, and can be worth thousands per employee depending on eligibility.
Important: This credit requires pre-screening and timely paperwork, including IRS Form 8850, typically submitted within 28 days of the employee's start date.
Best for: Restaurants with frequent hiring and turnover.
Small Employer Health Insurance Credit (SHOP Credit)
Restaurants that provide employee health insurance may qualify for this credit.
What it is: A credit for a portion of the health insurance premiums paid on behalf of employees, up to 50% of employer-paid premiums (up to 35% for eligible tax-exempt employers).
Who qualifies: Generally, employers with fewer than 25 full-time equivalent employees who purchase insurance through the SHOP Marketplace. Average wages paid to employees are a factor in eligibility.
Best for: Restaurants that may not operate in a tipping environment but offer competitive pay to their employees.
Common Restaurant Tax Credit Mistakes We See
Restaurant tax credits can create real savings, but only when handled correctly. Some of the most common issues include:
• Missing WOTC deadlines (paperwork submitted too late)
• Tips not being properly captured in payroll, reducing the FICA Tip Credit
• Misclassifying employees or payroll data
• Not coordinating credits with other deductions and tax strategies
• Claiming credits without support or documentation
How Brinker Simpson Helps Restaurants Capture Credits (and Avoid Problems)
At Brinker Simpson & Company, we work with restaurant and hospitality operators to:
• Identify credits you may qualify for
• Coordinate payroll reporting and documentation
• Ensure credits are properly claimed on your business return
• Help you stay compliant while reducing your tax burden
Whether you operate a single location or manage a multi-entity restaurant group, we can help you evaluate opportunities and implement a plan that supports growth.
Want to Know Which Credits Your Restaurant Qualifies For?
If you'd like help reviewing your payroll structure, tip reporting, and hiring practices to maximize available credits, our team is happy to help. Contact Brinker Simpson & Company to schedule a consultation.
