The tax code has breaks written for restaurants, and they're easy to leave partly unclaimed.
The §45B credit equals employer FICA on tips above the amount needed to bring pay up to $5.15 an hour. For a busy full-service restaurant, it is often worth tens of thousands of dollars a year. The 2025 law extended the credit to beauty service businesses, which measure against the current $7.25 minimum wage instead.
Accurate tip reporting now benefits employees directly, which makes tip compliance easier to enforce. Mandatory service charges don't qualify for the deduction.
Kitchen equipment, seating, POS systems, and decor are 5- or 7-year property. Interior improvements are qualified improvement property. Owned buildings are 39-year property, but cost segregation can move qualifying components into 5-, 7-, and 15-year classes.
Section 274(o) disallows convenience-of-employer meals and food at on-site eating facilities starting in 2026. IRS regulations still let a restaurant or catering business deduct 100% of food bought for paying customers that its own staff also eat on shift, so document the practice.
Claim the credit on 2026 wages for eligible hires who started by December 31, 2025. For newer hires, keep the job offer date, start date, and any eligibility screening done on or before the offer. Also ask your state workforce agency whether it is holding 2026 requests, so you can act quickly if Congress renews the credit retroactively.
Management fees, intercompany leases, and consolidated payroll need consistent documentation. Combined groups also affect retirement plan coverage testing.
Connecticut's tip credit holds up only with tip records and employee tip attestations, and it doesn't apply to counter staff or delivery drivers. Reported tips also count for the 0.5% CT Paid Leave contribution. From January 1, 2027, paid sick leave covers employers with even one employee and must be paid at no less than the $17.48 minimum wage. For income tax purposes, Connecticut adds back federal bonus depreciation and lets owners subtract it over the next four years.
In a consultation, we look at your payroll tip reports, recent returns, and any buildout costs, estimate your FICA tip credit, and tell you whether earlier years may be worth amending.