Podcast Summary: Understanding Tip Credits with Joshua Santana – Restaurant Unstoppable #1250

Date: February 5, 2026
Host: Chris [Eric Cacciatore, Restaurant Unstoppable]
Guest: Joshua Santana, Co-Founder of Cerboni Services
Theme: Deep Dive into Understanding Tip Credits – What They Are, How They Work, and How Restaurateurs Can Take Advantage of the FICA Tip Credit

Episode Overview

This episode is a comprehensive exploration of tip credits—specifically the often-misunderstood FICA tip credit. Host Chris sits down with Joshua Santana, co-founder of Cerboni Services, to break down what tip credits are, how they differ from each other, common mistakes in claiming them, the impact of business entity choice, and crucial documentation and compliance strategies. The discussion is rooted in actionable advice and real-world examples, giving restaurateurs both clarity and practical steps to save on federal taxes and ensure proper compliance.

Key Discussion Points & Insights

1. Motivational Kick-Off

• Success Mantra (04:45):
  • "Don't be afraid to give up the good to go for the great." – John D. Rockefeller
  • Joshua Santana: “A lot of times people get comfortable on the position that they're in and they think it's smooth sailing...but they can do better.” (04:58)

2. What Are Tip Credits? Differentiating 'Tip Credit' from 'FICA Tip Credit'

[05:53–09:07]

• Tip Credit (Minimum Wage Offset):

  • Allows employers to use tips received by employees to meet minimum wage requirements.
  • Example: If minimum wage is $7.25, the employer pays $2.13, and tips make up the rest.

• FICA Tip Credit (The Focus of This Episode):

  • A federal tax credit for employers on the Social Security and Medicare taxes they pay on employees’ tips.
  • Joshua: “The FICA tip credit is I’m actually going to get credit back from the government when I file my tax return and reduce my tax liability.” (07:01)

• Confusion: Many restaurateurs—and even CPAs—confuse or conflate these two, leading to missed opportunities.

3. Why Is the FICA Tip Credit Important?

[09:07–11:43]

• Roughly 50% of restauranteurs are unaware of or do not utilize the FICA tip credit.
• Joshua: “I see multiple times...new clients...they're not utilizing it, not getting this credit—and it’s something that’s going to be able to give them and pay less federal income tax.” (05:53)
• Reason for lack of use: confusion, lack of specialist CPAs, and poor recordkeeping.
• Significant retroactivity: “You can also amend your return...retroactively do for the past three years, not more than that. And it can always roll over—for the next 20 years.” (11:05)

4. Key Concepts & Who Qualifies

[11:43–14:33]

Key Concepts

• Recordkeeping is critical: Maintain clear records of all tips paid, segregated from service/gratuity charges.
• Specialist CPA/accountant matters: Industry specialists are more likely to help restaurateurs capture these credits.

Who Qualifies?

• Any business in hospitality (restaurants, bars, possibly other tipped industries) where tips are received and reported.
• Applies to employees (not contractors).
• Not limited to restaurants, but prevalent there.

5. How the FICA Tip Credit Works

[14:33–16:00]

• Calculation Basis:
  • Credit is based on employer FICA taxes paid on tips reported by employees in excess of the federal minimum wage.
  • Joshua: “It’s going to be anything above $7.25, which is federal minimum wage.” (15:20)
  • Subtract out the minimum wage portion; only tips above that amount are eligible for the credit.

6. Common Mistakes That Reduce or Eliminate the Tip Credit

[16:11–26:45]

• Mixing Up Gratuity (Service Charges) and Tips:
  • Joshua: “GRAT and tips are viewed differently—GRAT does not apply or qualify for the tip credit.” (16:11)
  • Must be voluntary (true tip), not a mandatory service charge.
• POS and Payroll Integration Issues:
  • Tips and GRAT must be clearly separated in both POS and payroll systems.
  • Even with correct POS classifications, if payroll lumps them together, credit is lost.
• Failure to inform payroll providers about the handling of these line items (tips vs. GRAT).
• Simply not knowing about the credit or not asking preparers the right questions:
  • Joshua: “Another one is not knowing it at all, or the person preparing doesn't know about it...” (22:58)
• Estimated value: Real-world examples show $50K or more per year, per location, is possible in federal savings.
• Retroactive amendment possible for the last three years.

7. Documentation Required for Claiming the FICA Tip Credit

[26:45–31:10]

• Sources:
  • Accurate daily tip reporting (via POS and tip-out systems).
  • Quarterly Form 941 (employer’s quarterly federal tax return).
  • Yearly Forms W-2 and W-3 (employee wage and tax statements).
• Model Tools:
  • Specialized systems (e.g., Kickfin, Toast) improve tracking, consistency, and provide data integrity.

8. Contractors vs. Employees

[30:21–31:42]

• Important distinction: Contractors (1099) do not qualify for the tip credit; only employees (W-2) do.
• Increasing gig work: As gig economy rises, clear contracts are required; IRS rules on classification are strict.
• Joshua: “If I’m telling this individual how to do, when to do, what to do, then it’s no longer a contractor.” (31:34)

9. Entity Structure & Tax Strategy: Why It Matters for the FICA Tip Credit Policy

[31:51–49:45]

• Entity Types Discussed:

  • LLC (Single-member): Flows through to personal tax return (1040).
  • S Corp (1120S): Separate return, passes income and credits to shareholders via K1.
  • Partnership (1065): Similar flow-through as S Corp, but partners pay self-employment tax.
  • C Corp (1120): The credit stays within the company (doesn’t pass through); subject to double taxation, but may benefit from a flat corporate tax rate on large earnings.

• Joshua’s General Tips:

  • “If I can avoid [self-employment tax], I’d rather be the 1120S.” (38:03)
  • Choose S-Corp generally if net income is over $300K.
  • C Corps are most attractive at very high revenue levels due to flat taxes, but caution with double-taxation risk.
  • On the tip credit: “On 1120 C, the FICA tip credit stays within that company…1120s or 1065, it trickles down to the individual, the owner.” (47:13)

• Tip for Owners:

  • Regularly check K-1 (look for box 15: credits) on returns to ensure your CPA is applying the FICA tip credit.

10. Planning Opportunities & Compliance

[52:03–53:28]

• Action Steps:
  • Regularly review returns for the credit—amend if missed (limit: past 3 years).
  • Review POS and payroll, educate all parties (and yourself).
  • Segregate and distinguish tips from mandatory service charges at every step.
• Compliance: Avoid claiming ineligible credits (e.g., including GRAT as tips).
• Strategy: Stay updated on legislative changes; choose the right entity for your growth stage.

11. Future of Tipping, Business Models, and The Role of Specialists

[54:23–56:32]

• No ‘one-size-fits-all’: Optimal entity structure depends on size, partners, ownership, and growth phase.
• Joshua: “Every scenario should be treated differently with an appropriate lens. I don’t think one blanket fits all.” (54:40)
• The tech and expertise are more available than ever (even for smaller operators) and having a restaurant-focused financial specialist is increasingly critical.

Notable Quotes & Memorable Moments

• On the critical difference:
  Chris: “Is tip credit and FICA tip credit two totally different things?”
  Joshua: “Two total different things.” (06:59)

• On POS/Payroll Integration:
  Joshua: “If I mix and mingle, then I’m going to be putting GRAT into this credit that I don’t qualify for.” (16:58)

• On getting specialist support:
  Chris: “Why go to a financial service that specializes in the restaurant industry? ... If you’re a specialist and you understand the uniqueness of the restaurant industry, then you’re going to catch these little opportunities.” (10:34)

• On regular missed opportunities:
  Joshua: “...you’re putting money on the table. You’re not taking it.” (23:26)

• On documentation:
  Joshua: “...the payroll software...it’s only a tool, right? But the person utilizing the tool needs to make sure they’re using the tool correctly.” (26:42)

• On entity choice and the FICA credit:
  Joshua: “On 1120 C, the FICA tip credit files, it’s going to stay within that company...versus 1065 and 1120s...it trickles down to the individual.” (47:13)

Key Timestamps

• 04:45 – Joshua’s Success Mantra (“Don’t be afraid to give up the good to go for the great.”)
• 05:53 – What is the FICA tip credit and why most restaurateurs miss it.
• 07:01 – The difference between wage tip credit and FICA tip credit.
• 14:33 – How the FICA tip credit actually works.
• 16:11 – Common mistakes (GRAT/service charge vs. tips).
• 26:51 – Required documentation for claiming the credit.
• 31:51 – Entity structure and tax strategy explained.
• 47:13 – How entity type affects where the credit is claimed.
• 52:03 – Planning, compliance, and action steps.

Takeaways for Restaurateurs

• Always verify: Check if your CPA is actively applying the FICA tip credit—most generalists overlook it.
• Be proactive: Review past returns (up to 3 years) and amend if needed.
• Get your systems right: Insist on separate tip and GRAT reporting at both the POS and payroll/HRIS level.
• Choose the right structure: S-Corp (1120S) is optimal for most growing restaurants, but review as you scale.
• Hire specialists: Seek finance professionals who truly know the restaurant space.

Resources & Contact

• Cerboni Services: [Joshua Santana – Joshua@cerboniservices.com], located in Houston, TX, supporting restaurants nationwide via digital platforms.
• Show notes and resources: RestaurantUnstoppable.com

This episode is a must-listen for any restaurant owner looking to maximize savings, stay compliant, and future-proof their financial operations. Joshua Santana’s expertise bridges the often-overlooked gap between tax compliance and operational profit for hospitality businesses.