Table of Contents
File a separate Form 8027 for each large food or beverage establishment. Use Form 8027-T, Transmittal of Employer's Annual Information Return of Tip Income and Allocated Tips, when filing more than one Form 8027. Do not attach any unrelated correspondence.
-
An establishment that serves evening meals only (with or without alcoholic beverages).
-
An establishment that serves evening and other meals (with or without alcoholic beverages).
-
An establishment that serves only meals other than evening meals (with or without alcoholic beverages).
-
An establishment that serves food, if at all, only as an incidental part of the business of serving alcoholic beverages.
Line 4a | |||
+ Line 4b | |||
Line 4c |
In figuring the tips you should report for 2008, do not include tips received by employees in December 2007, but not reported until January 2008. However, include tips received by employees in December 2008, but not reported until January 2009.
-
Multiply the establishment's gross receipts (other than nonallocable receipts) for the payroll period by 8% (.08) or the lower rate.
-
Subtract from the amount figured in step 1 the total amount of tips reported by employees who were tipped indirectly for the payroll period. This difference is the directly tipped employees' total share of 8% (or the lower rate) of the gross receipts of the establishment. Indirectly tipped employees do not receive tips directly from customers. Examples are bussers, service bartenders, and cooks. Directly tipped employees, such as waitstaff and bartenders, receive tips directly from customers. Employees, such as maitre d's, who receive tips directly from customers and indirectly through tip splitting or pooling, are treated as directly tipped employees.
-
For each employee who is tipped directly, multiply the result in step 2 by the following fraction: the numerator (top number) is the amount of the establishment's gross receipts attributable to the employee, and the denominator (bottom number) is the gross receipts attributable to all directly tipped employees. The result is each directly tipped employee's share of 8% (or the lower rate) of the gross receipts for the payroll period.
-
From each directly tipped employee's share of 8% or the lower rate of the gross receipts figured in step 3, subtract the tips the employee reported for the payroll period. The result is each directly tipped employee's shortfall (if any) for the period.
-
From the amount figured in step 1, subtract the total tips reported by both directly and indirectly tipped employees. The result is the amount that has to be allocated among the directly tipped employees who had a shortfall for the payroll period as figured in step 4.
-
For each directly tipped employee who had a shortfall for the period as figured in step 4, multiply the amount in step 5 by the following fraction: the numerator is the employee's shortfall (figured in step 4), and the denominator is the total shortfall of all directly tipped employees. The result is the amount of allocated tips for each directly tipped employee.
-
Provide for an allocation of the difference between total tips reported and 8% (or the lower rate) of gross receipts among employees who receive tips that approximates the actual distribution of tip income among the employees;
-
Be effective the first day of a payroll period that begins after the date the agreement is adopted, but no later than January 1 of the next year;
-
Be adopted when there are employees in each occupational category who would be affected by the agreement; and
-
Allow for revocation by a written agreement adopted by at least two-thirds of the employees in occupational categories affected by the agreement when it is revoked. The revocation is effective only at the beginning of a payroll period.
Sign your name and include your title. Then enter the date signed and the best daytime telephone number where IRS can reach you, including area code.
A large food or beverage establishment has gross receipts for a payroll period of $100,000 and has tips reported for the payroll
period of $6,200. Directly tipped employees reported $5,700, while indirectly tipped employees reported $500.
Directly tipped employees | Gross receipts for payroll period | Tips reported | ||
A | $18,000 | $1,080 | ||
B | 16,000 | 880 | ||
C | 23,000 | 1,810 | ||
D | 17,000 | 800 | ||
E | 12,000 | 450 | ||
F | 14,000 | 680 | ||
Totals | $100,000 | $5,700 | ||
1. | $100,000 (gross receipts) x .08 = $8,000 | |||
2. | $8,000 - $500 (tips reported by indirectly tipped employees) = $7,500 | |||
3. | Directly tipped employees | Directly tipped employee's share of 8% of the gross | (Times) Gross receipts ratio |
Employee's share of 8% of gross |
A | $7,500 | 18,000/100,000 = | $1,350 | |
B | $7,500 | 16,000/100,000 = | 1,200 | |
C | $7,500 | 23,000/100,000 = | 1,725 | |
D | $7,500 | 17,000/100,000 = | 1,275 | |
E | $7,500 | 12,000/100,000 = | 900 | |
F | $7,500 | 14,000/100,000 = | 1,050 | |
Total | $7,500 | |||
4. | Directly tipped employees | Employee's share of 8% of the gross | (Minus) Tips Reported |
Employee shortfall |
A | $1,350 | $1,080 = | $270 | |
B | $1,200 | 880 = | 320 | |
C | $1,725 | 1,810 = | – | |
D | $1,275 | 800 = | 475 | |
E | $ 900 | 450 = | 450 | |
F | $1,050 | 680 = | 370 | |
Total shortfall | $1,885 | |||
5. | $8,000 less $6,200 (total tips reported) = $1,800 (amount allocable among employees who had a shortfall) | |||
6. | Shortfall employees | Allocable amount | (Times) Shortfall ratio |
Amount of allocation |
A | $1,800 | 270/1,885 = | $258 | |
B | $1,800 | 320/1,885 = | 306 | |
D | $1,800 | 475/1,885 = | 454 | |
E | $1,800 | 450/1,885 = | 430 | |
F | $1,800 | 370/1,885 = | 353 | |
Since employee C has no shortfall, there is no allocation to C. |
In this example, the total amount of allocation is $1,801 resulting from the rounding off to whole numbers.
Unreported tip income can lead to additional employer liability for FICA taxes. As a means of determining if your employees are reporting all of their tips to you, please take a few minutes to voluntarily complete the following worksheet. Completing this worksheet is only for the employer's information (it is not sent to the IRS).
1. | Enter amount from Form 8027, line 1 | 1. | |
2. | Enter amount from Form 8027, line 2 | 2. | |
3. | Divide line 1 by line 2, enter as a decimal (at least 4 decimal places) | 3. | |
4. | Enter amount from Form 8027, line 4c | 4. | |
5. | Enter amount from Form 8027, line 5 | 5. | |
6. | Divide line 4 by line 5, enter as a decimal (at least 4 decimal places) | 6. | |
7. | Subtract line 6 from line 3; if zero or less, stop here | 7. | |
8. | Potential unreported tips. Multiply line 7 by line 5 | 8. |
-
If the entry on line 7 is zero or less, your employees are probably accurately reporting their tips; however,
-
If the entry on line 8 is greater than zero, depending on the type of operation you have and whether or not you have allocated tips, it is possible that your employees are not reporting all of their tip income to you.
If it appears that not all tips are being reported to you, the IRS offers a service called the Tip Rate Determination & Education Program. This program can assist you, the employer, in implementing more effective methods of tip income reporting. The program also offers assistance in educating tipped employees concerning their obligations relating to the reporting of any tip income they receive. To find out more about this program or to participate in a voluntary tip compliance agreement, visit www.irs.gov and type “restaurant” in the Keyword search box. You may also call 1-800-829-4933 or visit www.irs.gov/localcontacts for the IRS Taxpayer Assistance Center in your area; or send an email to TIP.Program@irs.gov and request information on this program.
More Online Instructions |