CPA Services for NJ Restaurants, Hotels & Catering Businesses

Frequently Asked Questions

What is the FICA tip credit and how much can I save?

The FICA tip credit (IRC §45B) allows employers to claim a federal income tax credit equal to the employer's share of Social Security and Medicare taxes (7.65%) paid on employee tips that exceed the federal minimum wage ($7.25/hour). The credit is dollar-for-dollar. It reduces your federal income tax directly, not just your taxable income. For a restaurant with 15 tipped employees earning an average of $200 in tips per day, 250 days per year, the annual credit can be approximately $40,000-$50,000. This credit is frequently missed by restaurants that use non-specialized CPAs.

What are my tip reporting obligations as a restaurant employer?

Form 8027 applies to large food or beverage establishments where tipping is customary and the employer normally employed **more than 10 employees** (total, not just tipped) on a typical business day in the preceding year, per IRC §6053(c) and the Form 8027 instructions. There is no $1,000-per-quarter receipts threshold. Form 8027 reports total receipts, charged receipts, charged tips, and reported tips. If reported tips are less than 8% of gross receipts, the employer must allocate additional tip income to employees on their W-2. The IRS TRAC (Tip Rate Determination and Education) and TRDA programs offer reduced examination risk for employers who comply with tip reporting standards. NJ conforms to federal tip reporting requirements.

Is food taxable in NJ?

It depends on how it's sold. Prepared food sold for immediate consumption (restaurant meals, deli sandwiches, hot food) is generally subject to NJ sales tax at 6.625%. Unprepared food sold for home preparation and consumption is generally exempt. The line gets complex for items like hot coffee (taxable), cold drinks (generally taxable), baked goods (depends on preparation), and caterers (generally taxable for food + service). Alcohol is always taxable. Catering services, where food is part of a larger service package, are generally taxable on the total charge.

How does NJ hotel occupancy tax work?

New Jersey imposes a state hotel and motel occupancy fee on hotel room rentals. The state portion is 5% of the room rate. Municipalities may impose additional local occupancy taxes. Atlantic City and certain resort areas have separate tax structures. Hotels must register with the NJ Division of Taxation, collect the tax from guests, and file ST-250 returns quarterly. Short-term rental platforms like Airbnb typically collect and remit NJ occupancy taxes on behalf of hosts, but hosts must verify this is actually happening for their jurisdiction.

Should my restaurant be an S-corp or LLC?

For restaurants netting above $50,000-$80,000 annually, an S-corp election often saves meaningful self-employment taxes by splitting income between W-2 wages and distributions. However, restaurants have complex payroll (tipped employees, multiple wage rates) that increases the administrative complexity of an S-corp structure. The FICA tip credit is available to both S-corps and LLCs. NJ's CBT on S-corp income also needs to be factored in. The right structure depends on your net income level, how many employees you have, and your long-term plans.