Weekly, not monthly
Food cost and labor cost move weekly, so restaurant bookkeeping services have to run weekly. An annual return tells you what happened a year after you could have done anything about it.
Key takeaways
The FICA tip credit is where money hides
The FICA tip credit is the most commonly missed money in this industry, and unreported tips produce none of it.
Payroll + sales tax = where the penalties live
Tipped payroll runs on its own hospitality wage order and prepared food is taxable, and those two are where the penalties in this industry attach.
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Call (212) 641-0673 or send the contact form. Our team gets back to you within 24 hours, and we are available evenings and weekends.
Confidential, and handled by a CPA or EA.
The setup
Weekly cost control + a compliance stack no other small business carries
Restaurant accounting is weekly cost control plus a set of compliance obligations that no other kind of small business carries all at once. A restaurant collects sales tax daily, runs payroll on wage rules written specifically for hospitality, handles money that is not its own in the form of tips, and holds inventory that spoils. Restaurant bookkeeping services have to carry all four.
That combination is why a generalist bookkeeper struggles here, and why an accountant for restaurants works to a weekly rhythm. By the time a monthly close arrives, four weeks of food cost has already gone out of the door and the labor percentage that caused it cannot be recovered. A monthly rhythm is too slow to act on.
The work splits in two. First, weekly numbers you can act on: food cost, labor cost, prime cost and sales per labor hour, read off a restaurant profit and loss statement built for the format. Second, compliance that has to be right the first time, because the penalties in this industry attach to payroll and sales tax rather than to income tax.
01Tip income
Tip income: the FICA tip credit and 2026 W-2 reporting
Tips fall into two groups for tax purposes. Money a customer chooses to leave is a tip, whether it is cash or added on the card, and it earns the FICA tip credit. A charge the house sets, such as an automatic gratuity on a large party, is not a tip and earns no credit.
Three kinds of payment, two tax treatments
Cash tips
Left by the customer
Charged tips
Added on the card
Service charges
The house sets the amount
Treated as tips
- Earns the FICA tip credit, once it is reported
- Staff can claim the tip deduction
- Stays out of the rate used to work out overtime
Treated as wages
- No FICA tip credit
- No tip deduction for staff
- Raises the overtime rate
Unreported tips produce no credit at all, so the reporting system is what creates the credit.
What the FICA tip credit covers
The credit under section 45B offsets federal income tax by the employer share of Social Security and Medicare paid on eligible tips. It is claimed on Form 8846 and carried to Form 3800, and it is a credit rather than a deduction. Tips used to bring an employee’s cash wage up to a statutory floor are not creditable. Everything above that generally is, at 7.65 percent, dropping to 1.45 percent once an individual passes the Social Security wage base.
What does not count as a tip: service charges and unreported tips
Two things reduce the credit and both are avoidable. Unreported tips produce no credit at all, so the reporting system is what creates the credit. Service charges are not tips: an automatic gratuity the house sets, of the kind added to large parties, counts as non-tip wages, meaning ordinary wages rather than tips, so it earns no credit and it changes the overtime calculation for the employee. Both are reporting problems before they are tax problems.
Example. A party of eight runs up a $400 check. If the guests leave $80 themselves, that is a tip: once it is reported it counts toward the FICA tip credit, and it stays out of the regular rate used to work out that employee’s overtime. If the house adds an $80 automatic gratuity to the same check, the money is non-tip wages: it earns no credit, and it does go into the regular rate for overtime.
New W-2 tip and overtime codes for 2026
The One Big Beautiful Bill Act created employee deductions for qualified tips and overtime, and the IRS added new Form W-2 fields to support them. Code TP reports cash tips, Box 14b reports the tipped occupation, and Code TT reports qualified overtime. Payroll has to populate the fields that apply so staff can claim each deduction.
Code TP
Cash tips
Reports the tips an employee received in cash.
Box 14b
Tipped occupation
Reports which tipped occupation the employee worked in.
Code TT
Qualified overtime
Reports overtime that qualifies for the new deduction.
Payroll has to populate the fields that apply so staff can claim each deduction.
[ Have us run the tip credit ]
Most operators either miss the FICA tip credit or under-claim it, and it is claimable on amended returns for prior years. Send us a year of payroll and we will tell you what is there. Call (212) 641-0673.
02Part 146
Tipped payroll under New York's hospitality wage order (Part 146)
Hospitality has its own wage order, Part 146, and the rates changed on 1 January 2026. This is the part of restaurant payroll services that generic providers get wrong.
New York City tipped rates from 1 January 2026
| Classification | Cash wage | Tip credit | Minimum reached |
|---|---|---|---|
| Food service worker Servers and bartenders. Bartenders sit on this tier too. | $11.35 | $5.65 | $17.00 |
| Service employee A different classification, and a different rate. | $14.15 | $2.85 | $17.00 |
Classifying a server as a service employee is the most common payroll error we find, and it underpays them by nearly three dollars an hour.
The tip threshold. For service employees in restaurants, the credit is only available in weeks where tips average at least $3.65 per hour. Below that, the full minimum applies.
Rates effective 1 January 2026. They expire on 31 December 2026, and the state indexes annually from 2027.
The 80/20 rule:no tip credit on any day a tipped worker spends two hours or more, or more than 20 percent of the shift, on non-tipped side work.
Spread of hours:one extra hour at the basic minimum wage whenever the workday spans more than ten hours from start to finish, unpaid break included, or on a split shift. In hospitality it applies regardless of pay rate, which is why it gets missed on better paid staff.
Overtime on a tip credit:one and a half times the full minimum wage, then subtract the credit. Taking time and a half on the cash wage instead is a standard and expensive mistake.
Tip pooling:New York does not let an employer keep any part of a tip, and pools are limited to directly and indirectly tipped employees who provide customer service.
03Sales tax + CRT + licenses
Sales tax, commercial rent tax and licenses for New York restaurants
An accountant for restaurants should be running these filings on a calendar rather than reacting to notices.
Prepared food is taxable, groceries generally are not:the line between them is where sales tax audits in this industry begin. Heating an item, or serving it to be eaten on the premises, can move the same product across that line.
The New York City combined rate is 8.875 percent:state, city and the transportation district surcharge together. The mechanics are on our New York sales tax guide.
Filing frequency is set by volume.Busy restaurants get moved to more frequent filing without much warning.
Commercial rent tax, if you are in Manhattan below 96th Street:a return can be required above $200,000 of annual gross rent, and tax starts from $250,000 of annualized base rent at an effective 3.9 percent. The small business credit removes it where income is $5 million or less and base rent under $500,000. Outside that zone it does not apply.
Liquor license and alcohol tax:State Liquor Authority obligations run alongside. Separate alcoholic beverage tax filings generally apply to producers, distributors and importers, not to ordinary restaurant retailers.
Delivery platforms:New York's marketplace provider rules are built around tangible personal property, and the Tax Department does not treat restaurant food as that, so the obligation does not shift the way operators assume. Check the platform agreement and reconcile.
04Chart of accounts + food cost
Chart of accounts, food cost and equipment depreciation
Restaurant bookkeeping services stand or fall on the chart of accounts.
A restaurant chart of accounts:food and beverage split by category, labor split by front and back of house, and occupancy separated out. A generic one makes prime cost impossible to read.
Weekly prime cost:cost of goods plus total labor, as a percentage of sales. It is the number that tells you whether the week worked, and it has to arrive within days rather than weeks.
Inventory method and counts:the count schedule matters more than the valuation method for most independents, because an uncounted period makes food cost a guess.
Kitchen equipment:section 179 and bonus depreciation both apply, and which one to use depends on your income position rather than on which is larger.
Leasehold improvements:a buildout is not one asset. Parts of it qualify for faster treatment and parts do not, and the split is worth getting right before the return is filed.
Delivery and platform fees:record them gross, not net. Netting them understates sales and makes margin look better than it is.
05By format
Restaurant accounting requirements by format
Full service restaurants
Tipped payroll, tip pooling, and the wage order rules that come with both.
Bars and cocktail rooms
Liquor license obligations, pour cost, and the food service worker rules that also cover bartenders.
Quick service and counter service
High volume sales tax, thin margins, and labor scheduled to the quarter hour.
Cafes and bakeries
The prepared versus unprepared food line, which decides what you charge tax on.
Multi location groups
Consolidated reporting, intercompany charges, and one chart of accounts across sites.
Caterers and ghost kitchens
Delivery platform reconciliation, and service charges that are not tips.
06Onboarding
How onboarding works
Most restaurants are mid service when they call. The process is built around that.
Free consultation
Format, number of locations, current point of sale and payroll systems, and what is currently late.Systems review
We connect to the point of sale, the payroll provider and the bank, and find out what the books actually say rather than what they should say.Scope and fixed fee
Weekly, monthly or fully outsourced accounting for restaurants, agreed in writing before work starts.Clean up and chart of accounts
The prior period is corrected and the accounts are rebuilt so prime cost can be read.Weekly rhythm
Numbers by a fixed day each week, filings on a calendar, and a call when something moves that you should know about.
07Cost
What restaurant bookkeeping services cost
Restaurant bookkeeping services are priced per engagement rather than by the hour. Five things move the number.
How many locations,and whether they file separately.
Sales volume,and how often you file sales tax.
Headcount,and how many of those people are tipped.
Whether payroll is included,or you keep your existing provider.
How far behind the books arewhen we start.
These are the factors, not a quote. Every engagement is scoped and quoted at a fixed fee before work starts.
08Related
Related guides and services
12+ years
serving NYC
150,000+
returns filed
5 star
Google and Yelp
Open
evenings and weekends
From the record
On the holistic approach
“That differs from most tax services because most tax services are quite cookie cutter. So we're going to actually take a look at the person's goals, what they're looking for in the short term, what they're looking for in their long-term, family planning, retirement planning, a holistic tax approach.”
George Dimov, CPA
“I have a pool cleaning business with a half dozen contractors and George’s team manage the whole thing: from payroll to quarterlies to returns.”
Eric Gurfein
Google review
Put the books on a weekly rhythm
Put the books on a weekly rhythm
Tell us the format, the number of locations, what you run the register on and how far behind the books are. We will tell you what the weekly rhythm should look like and quote a fixed fee. Onboarding does not have to wait for the end of a quarter.
Reviewed by George Dimov, CPA, New York, NY. Serving clients in all 50 states, 15+ years advising restaurant and hospitality operators on restaurant bookkeeping services, tipped payroll and sales tax.