The Tip Credit: Key Rules, Limitations and Planning Considerations

The expansion of the federal tip credit to the beauty industry creates new tax planning opportunities for salons, nail businesses, med spas and other qualifying businesses. But taking advantage of the credit requires more than simply calculating 7.65% of reported tips.

In this episode of Traction with the Tiger, Chris Wittich takes a deeper look at the tip credit and some of the lesser-known rules that can affect how businesses use it. He explains how the credit is calculated, why it is nonrefundable, how limitations can affect the amount of tax it offsets, and how excess credits can be carried back or forward.

Chris also discusses Form 1045 and the process for claiming an excess tip credit from a prior tax year, including why businesses may want to consider a carryback claim rather than waiting to file an amended return. The episode also covers a less common limitation involving employees paid below the federal minimum wage and why this issue is more relevant to certain restaurant businesses than most beauty industry employers.

For beauty industry businesses that can now take advantage of the expanded tip credit, understanding these rules is an important part of 2025 tax compliance and ongoing tax planning.

View transcript.