How Cape Ledger does the math
Every rule we use, in plain words, with the IRS page it comes from. We checked each one on Sep 30, 2026. Where something isn't settled we say so and don't guess.
The FICA tip credit
For tax years beginning after 2024, employers in barbering and hair care, nail care, esthetics, and body and spa treatment can claim a credit for the employer social security and Medicare tax they paid on employees' tips.
Line 1 tips on which you paid employer FICA · Line 2 tips needed to bring pay up to $7.25/h · Line 3 = 1 − 2 · Line 4 = line 3 × 7.65%.
Line 2 is worked out per employee, per month: hours × $7.25 minus wages excluding tips, never below zero and never more than that month's tips. Pay at least $7.25/h before tips and line 2 is zero.
Once an employee's wages and tips for the year pass the social security wage base (2025: $176,100, 2026: $184,500), the rest of their tips earn only 1.45%. We don't estimate years whose wage base isn't published yet.
The credit reduces your deduction for employer FICA by the same amount, and it can be claimed on an original or amended return within 3 years of the return's due date.
Source: Form 8846 (Rev. 2025), IRS
Service charges aren't tips
Automatic gratuities and service charges you add to a bill are wages, not tips, so they're left out of the credit. When you import a POS file you can mark those columns as service charges.
Source: Rev. Rul. 2012-18
Monthly tip statements
Employees who receive $20 or more in tips in a month report them to the employer in writing by the 10th of the next month. If the 10th is a Saturday, Sunday or legal holiday, it moves to the next business day — September 2026 statements are due Oct 12, 2026.
Form 4070 is the IRS's optional form; any signed statement with the same details works. Ours has the employee's name, an address or employee ID of your choosing, your salon, the month, cash tips, card tips, tip-outs, net tips, a typed signature and the date. No Social Security number.
We shift for weekends today. Legal holidays (for example Columbus Day, Oct 12, 2026) are on our list to confirm before launch.
No Tax on Tips (solo mode)
For 2025 through 2028, qualified tips — voluntary cash or card tips from customers — can be deducted up to $25,000 a year, whether or not you itemize.
It shrinks above modified AGI of $150,000 ($300,000 joint). The IRS page doesn't give the rate, so we show a warning instead of a number.
Self-employed: the deduction can't exceed net income from the business where the tips were earned, and isn't available if the business is a specified service trade or business. Massage and spa work might be — we flag it for your tax professional.
Occupation codes from the IRS's proposed list (not final yet): 601 Skincare Specialists · 602 Massage Therapists · 603 Barbers, Hairdressers, Hairstylists, and Cosmetologists · 604 Shampooers · 605 Manicurists and Pedicurists · 606 Makeup Artists · 608 Tattoo Artists and Piercers.
Rule status
Each value lives in one place in our code with its source and the date we checked it.
- fica.covered_servicesTax years beginning after 2024: tips for these services, where tipping is customary. Food & beverage is also covered (not our market).checked 2026-09-30
- fica.min_wage_beautyBeauty service businesses use the federal minimum wage currently in effect ($7.25/h) for line 2; food & beverage uses $5.15.checked 2026-09-30
- fica.rate_fullLine 4: creditable tips × 7.65%.checked 2026-09-30
- fica.rate_medicare_onlyTips above the social security wage base (wages + tips for the calendar year) earn only 1.45%.checked 2026-09-30
- fica.ss_wage_base2025 $176,100 and 2026 $184,500, both printed on the 2025 form. Later years are VERIFY_BEFORE_LAUNCH: add them here once the SSA announces them — the product refuses to guess.checked 2026-09-30
- fica.claim_window_yearsThe credit can be claimed on an original or amended return within 3 years from the return's due date — this powers the 2025 lookback.checked 2026-09-30
- fica.deduction_reducedchecked 2026-09-30
- fica.service_chargesRev. Rul. 2012-18. The importer lets the owner mark a column as “service charge (excluded)”.checked 2026-09-30
- tips.report_thresholdAn employee who receives $20 or more in tips in a month must report them to the employer in writing.checked 2026-09-30
- tips.report_due_dayDue by the 10th of the following month; if the 10th is a Saturday, Sunday or legal holiday, the next business day.checked 2026-09-30
- tips.legal_holidaysOnly the weekend shift is applied today. Legal holidays (federal + DC, and statewide holidays) also move the due date — e.g. Oct 12, 2026 is Columbus Day, so the Sep 2026 report may really be due Oct 13. Confirm the list before launch and add the dates here.to confirm
- tips.statement_fieldsForm 4070 is optional; any signed written statement with these items works. We never collect Social Security numbers.checked 2026-09-30
- ntt.yearsDeduction for qualified tips applies for tax years 2025 through 2028. Available to itemizers and non-itemizers.checked 2026-09-30
- ntt.capMaximum annual deduction $25,000.checked 2026-09-30
- ntt.magi_phaseoutPhases out above MAGI $150,000 ($300,000 joint). The phase-out RATE is not on the source page, so we never compute it — we show a warning line only.checked 2026-09-30
- ntt.self_employedchecked 2026-09-30
- ntt.ttoc_codesProposed list (Federal Register 2025-18278, 600s Personal Appearance & Wellness). Confirm against the final regulation.to confirm
- ntt.sstb_flagMassage / spa work may count as a 'health' SSTB under §199A, which would block the self-employed deduction. We show a note, never a verdict.to confirm
- imports.pos_templatesColumn layouts for Square, Vagaro, GlossGenius, Fresha and Boulevard were built from synthetic files. Check each against a real export.to confirm
Cape Ledger is recordkeeping software by Tenpenny. It is not a tax advisor and doesn't file anything with the IRS. Estimate — confirm with your tax professional.