General Instructions

Purpose of Form

Form 8027 is used by large food or beverage establishments when the employer is required to make annual reports to the IRS on receipts from food or beverage operations and tips reported by employees.

All employees receiving $20 or more a month in tips must report 100% of their tips to their employer.

Who Must File

You must file Form 8027 if you are an employer who operates a large food or beverage establishment. If you own more than one establishment, you must file Form 8027 for each one. There may be more than one establishment (business activity providing food or beverages) operating within a single building, and, if gross receipts are recorded separately, each activity is required to file a Form 8027.

A return is required only for establishments in the 50 states and the District of Columbia.

If you are required to report for more than one establishment, you must complete and file Form 8027-T, Transmittal of Employer's Annual Information Return of Tip Income and Allocated Tips, with Forms 8027.

A large food or beverage establishment is one to which all of the following apply.

  • Food or beverage is provided for consumption on the premises.

  • Tipping is a customary practice.

  • More than 10 employees who work more than 80 hours were normally employed on a typical business day during the preceding calendar year.

Worksheet for Determining Whether To File Form 8027

You can complete the optional worksheet below to determine if you had more than 10 employees on a typical business day during 2012 and, therefore, must file Form 8027 for 2013. It is the average number of employee hours worked on a typical business day that determines whether or not you employed more than 10 employees. Completing this worksheet is only for the employer's information (it is not sent to the IRS).

1. Enter one-half of the total employee hours worked during the month in 2012 with the greatest aggregate gross receipts from food and beverages  
2. Enter the number of days opened for business during the month shown in line 1  
3. Enter one-half of the total employee hours worked during the month in 2012 with the least aggregate gross receipts from food and beverages  
4. Enter the number of days opened for business during the month shown in line 3.  
5. Divide line 1 by line 2.  
6. Divide line 3 by line 4.  
7. Add lines 5 and 6. If line 7 is greater than 80 (hours), you must file Form 8027 for 2013.  

Note.

The filing requirement (more than 10 employees) is based on the total of all employees who provided services in connection with the provision of food and beverages at the establishment, not just the number of directly tipped employees. Include employees such as waitstaff, bussers, bartenders, seat persons, wine stewards, cooks, and kitchen help. See Regulations section 31.6053-3(j)(10) for more information.

A person who owns 50% or more in value of the stock of a corporation that runs the establishment is not considered an employee when determining whether the establishment normally employs more than 10 individuals.

New large food or beverage establishment.   File Form 8027 for a new large food or beverage establishment if, during any 2 consecutive calendar months, the average number of hours worked each business day by all employees is more than 80 hours. To figure the average number of employee hours worked each business day during a month, divide the total hours all employees worked during the month by the number of days the establishment was open for business. After the test is met for 2 consecutive months, you must file a return covering the rest of the year, beginning with the next payroll period.

Exceptions To Filing

Do not file for any fast food operation. Also, do not file for any food or beverage operation if any of the following conditions are met.

  • It operated for less than 1 month in calendar year 2013.

  • Tipping is not customary. Generally, tipping is not considered customary in a cafeteria-style operation. See Regulations section 31.6053(j)(18) for more information.

  • At least 95% of total sales (other than carryout) had a service charge of 10% or more.

When To File

File Form 8027 (and Form 8027-T when filing more than one Form 8027) by February 28, 2014. However, if you file electronically, the due date is March 31, 2014.

Extension of time to file.   Filers of Form 8027 submitted on paper or electronically may request an extension of time to file on Form 8809, Application for Extension of Time To File Information Returns. File Form 8809 as soon as you know an extension of time to file is necessary, but not later than February 28, 2014 (March 31, 2014 if you file electronically).

Where To File

Mail Form 8027 to:

Department of the Treasury  
Internal Revenue Service  
Cincinnati, OH 45999

Note.

When filing a paper Form 8027, attach a copy of your extension approval (or a copy of your timely filed Form 8809 if an extension is not received by the time you file), a copy of your approved waiver (Form 8508, Request for Waiver From Filing Information Returns Electronically) from filing Form 8027 electronically, a copy of your “lower rate” determination letter from the IRS, and/or a copy of your good-faith agreement. Do not attach any unrelated correspondence. See line 6 of Form 8027.

Reporting and filing electronically.   If you are the employer and you file 250 or more Forms 8027, you must file the returns electronically. See Pub. 1239 for information on filing Form 8027 electronically.

Penalties

The law provides for a penalty if you do not file Form 8027 (and Form 8027-T) on time unless you can show reasonable cause for the delay. You may be charged penalties for each failure to:

  • Timely file a correct information return including failure to file electronically if required, and

  • Timely provide a correct Form W-2, Wage and Tax Statement, to the employee.

For more information on penalties for untimely or incorrect Forms W-2 or 8027, see Pub. 1239 and the General Instructions for Forms W-2 and W-3.

Gross Receipts

Gross receipts include all receipts (other than nonallocable receipts, see definition below) from cash sales, charge receipts, charges to a hotel room (excluding tips charged to the hotel room if your accounting procedures allow these tips to be separated), and the retail value of complimentary food or beverages served to customers as explained below.

Also include charged tips in gross receipts, but only to the extent that you reduced your cash sales by the amount of any cash you paid to tipped employees for any charged tips due them. However, if you did not reduce cash sales for charged tips paid out to employees, do not include those charged tips in gross receipts. Do not include state or local taxes in gross receipts.

Remind all directly and indirectly tipped employees to include all charged tips and all cash tips received in the tip amount that they must report to you.

Nonallocable receipts.   These are receipts for carryout sales and receipts with a service charge added of 10% or more. Nonallocable receipts generally include all sales on which tipping is not customary.

Complimentary items.   Food or beverages served to customers without charge must be included in gross receipts if (a) tipping for providing them is customary at the establishment, and (b) they are provided in connection with an activity that is engaged in for profit and whose receipts would not be included in the amount on line 5 of Form 8027.

  For example, you would have to include in gross receipts the retail value of the complimentary drinks served to customers in a gambling casino because tipping is customary, the gambling casino is an activity engaged in for profit, and the gambling receipts of the casino are not included in the amount on line 5.

  However, you would not have to include the retail value of complimentary hors d'oeuvres at your bar or a complimentary dessert served to a regular patron of your restaurant in gross receipts because the receipts of the bar or restaurant would be included in the amount on line 5. You would not have to include the value of a fruit basket placed in a hotel room in gross receipts since, generally, tipping for it is not customary.

Allocation of Tips

You must allocate tips among employees who receive them if the total tips reported to you during any payroll period are less than 8% (or the approved lower rate) of this establishment's gross receipts for that period.

Generally, the amount allocated is the difference between the total tips reported by employees and 8% (or the lower rate) of the gross receipts, other than nonallocable receipts.

Lower rate.   You (or a majority of the employees) may request a lower rate (but not lower than 2%) by submitting a petition to:

Internal Revenue Service 
National Tip Reporting Compliance 
3251 North Evergreen Dr. NE 
Grand Rapids, MI 49525

  
Do not mail Form 8027 to this address. See Where To File, earlier.

   The burden of supplying sufficient information to allow the IRS to estimate with reasonable accuracy the actual tip rate of the establishment rests with the petitioner. Your petition for a lower rate must clearly demonstrate that a rate less than 8% should apply. It must include the following information.
  • Employer's name, address, and EIN.

  • Establishment's name, address, and establishment number.

  • Detailed description of the establishment that would help to determine the tip rate. The description should include the type of restaurant, days and hours of operation, type of service including any self-service, the person (waiter or waitress, cashier, etc.) to whom the customer pays the check, whether the check is paid before or after the meal, and whether alcohol is available.

  • Past year's information shown on lines 1 through 6 of Form 8027 as well as total carryout sales; total charge sales; percentage of sales for breakfast, lunch, and dinner; average dollar amount of a guest check; service charge, if any, added to the check; and the percentage of sales with a service charge.

  • Type of clientele.

  • Copy of a representative menu for each meal.

   
The petition must contain the following statement and be signed by a responsible person who is authorized to make and sign a return, statement, or other document.
  Under penalties of perjury, I declare that I have examined this petition, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of this petition are true, correct, and complete.

  You must attach to the petition copies of Form 8027 (if any) filed for the 3 years before your petition. If you are petitioning for more than one establishment or you want to know your appeal rights, see Rev. Proc. 86-21, 1986 1 C.B. 560 for additional information. Also include with your petition a check or money order made payable to the “United States Treasury” for the amount of the user fee required for determination letters.

  For the current user fee amount, consult the first revenue procedure of the year (for example, Rev. Proc. 2013-1, 2013-1 I.R.B. 1, available at www.irs.gov/irb/2013-01_IRB/ar06.html). This revenue procedure is updated annually as the first revenue procedure of the year, but it may be modified or amplified during the year. The user fees are posted in Appendix A of the revenue procedure. Since the taxpayer is requesting a letter ruling determination, the payment for the user fee must be submitted along with the petition for the rate reduction.

  A majority of all the directly tipped employees must consent to any petition written by an employee. A “majority of employees” means more than half of all directly tipped employees employed by the establishment at the time the petition is filed. Employee groups must follow the procedures in Regulations section 31.6053-3(h); Pub. 531, Reporting Tip Income; and Rev. Proc. 86-21.

  The IRS will notify you when and for how long the reduced rate is effective.

Note.

You must attach a copy of your “lower rate” determination letter from the IRS when filing a paper Form 8027. See Pub. 1239 for instructions on submitting a copy of your “lower rate” determination letter from the IRS when filing electronically.

Reporting Allocated Tips To Employees

Give each employee who has been allocated tips a Form W-2 that shows the allocated amount in box 8. The form must be furnished to the employee by January 31 of the following year. If employment ends before the end of the year and the employee asks for the Form W-2, a tip allocation is not required on the early Form W-2. However, you may include on the early Form W-2 the employee's actual tip allocation or a good-faith estimate of the allocation. Signify a good-faith estimate by writing “estimate” next to the allocated amount in box 8 of the Form W-2.

If no allocation was shown on the early Form W-2 or if the estimated allocation on the early form differs from the actual amount by more than 5%, prepare a new Form W-2 with the correct information, and send Copy A to the Social Security Administration (SSA). Write "CORRECTED" on the employee's new copies (B, C, and 2), and furnish them to the employee. Do not write "CORRECTED" on Copy A of Form W-2.

If you allocate tips among employees by the methods described in the instructions for lines 7a through 7c, you are not liable to any employee if any amount is improperly allocated. However, if the allocation shown on the employee's Form W-2 differs from the correct allocation by more than 5%, you must adjust that employee's allocation and must review the allocable amount of all other employees in the same establishment to assure that the error did not distort any other employee's share by more than 5%.

Use the current version of Form W-2c, Corrected Wage and Tax Statement, to report the corrected allocation on a previously filed Form W-2. However, if you discover the allocation error on Form W-2 after you issue it to your employee but before you send it to the SSA, prepare a new Form W-2 with the correct information, and send Copy A to the SSA. Write “CORRECTED” on the employee's new copies (B, C, and 2), and furnish them to the employee. Do not write “CORRECTED” on Copy A of Form W-2.

You do not need to send to the IRS separate copies of Forms W-2 showing allocated tips. The IRS will use the information shown on the Forms W-2 that you file with the SSA.

Tip allocations have no effect on withholding income tax, social security tax, or Medicare tax from employees' wages. Allocated tips are not subject to withholding and are not to be included in boxes 1, 3, 5, and 7 of Form W-2.


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