Table of Contents
- Name and Address of Establishment and Employer Identification Number
- Type of Establishment
- Employer's Name and Address
- Establishment Number
- Lines 1 Through 8
- Credit Card Sales
- Rounding Off to Whole Dollars
- Line 1. Total Charged Tips for Calendar Year 2013
- Line 2. Total Charge Receipts Showing Charged Tips
- Line 3. Total Amount of Service Charges of Less Than 10% Paid as Wages to Employees
- Line 4a. Total Tips Reported by Indirectly Tipped Employees
- Line 4b. Total Tips Reported by Directly Tipped Employees
- Line 4c. Total Tips Reported
- Line 5. Gross Receipts from Food or Beverage Operations
- Line 6
- Line 7. Allocation of Tips
- Line 7a. Hours-Worked Method
- Line 7b. Gross Receipts Method
- Line 7c. Good-Faith Agreement
- Line 8. Total Number of Directly Tipped Employees
- Who Must Sign?
- Example for Line 7b. Gross Receipts Method
- Employer's Optional Worksheet for Tipped Employees
File a separate Form 8027 for each large food or beverage establishment. Use Form 8027-T when filing more than one Form 8027.
Type or print the name and address of the establishment. They may be different from your mailing address, as in the case of employers who have more than one establishment. If mail is not delivered to the street address of the establishment, enter the P.O. box number. The employer identification number (EIN) should be the same as the number on the Forms W-2 that you give to the employees and the Form 941, Employer's QUARTERLY Federal Tax Return, that you file to report wages and taxes for employees working for the establishment.
Check the box (check only one box) on the form that best describes the food or beverage operation at this establishment.
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.
Enter the name and address of the entity or individual whose EIN was provided earlier. Enter foreign addresses as follows: city, province or state, and country. Do not abbreviate the name of the country.
Enter a five-digit number to identify the individual establishments that you are reporting under the same EIN. Give each establishment a separate number. For example, each establishment could be numbered consecutively, starting with 00001.
If the credit or debit charge receipts reflect tips, then you must enter on lines 1 and 2 the appropriate amounts shown on the credit card or debit card charge statements. See instructions for line 1 below.
You may round off cents to whole dollars on your Form 8027. If you do round to whole dollars, you must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50 becomes $3.
If you have to add two or more amounts to figure the amount to enter on a line, include cents when adding the amounts and round off only the total.
Enter the total amount of tips that are shown on charge receipts for the year.
Enter the total sales (other than nonallocable receipts as defined earlier) from charge receipts that had a charged tip shown. Include credit card charges and other credit arrangements and charges to a hotel room unless your normal accounting practice consistently excludes charges to a hotel room. Do not include any state or local taxes in the amounts reported.
Enter the total amount of service charges of less than 10% that have been added to customers' bills and have been distributed to your employees for the year. In general, service charges added to the bill are not tips since the customer does not have a choice. These service charges are treated as wages and are includible on Form W-2.
Enter the total amount of tips reported for the year by indirectly tipped employees, such as cooks, bussers, and service bartenders. Indirectly tipped employees generally receive their tips from other tipped employees and not directly from the customer.
Enter the total amount of tips reported for the year by directly tipped employees, such as bartenders and waitstaff. Directly tipped employees receive tips directly from customers.
Add the amounts on lines 4a and 4b and enter the result on line 4c. This amount cannot be a negative amount.
Enter the total gross receipts from the provision of food or beverages for this establishment for the year.
If you do not charge separately for providing food or beverages along with other goods or services (such as a package deal for food and lodging), make a good-faith estimate of the gross receipts from the food or beverages. This estimate must reflect the cost to the employer for providing the food or beverage plus a reasonable profit factor.
Enter the result of multiplying line 5 by 8% (.08) or a lower rate (if the establishment was granted a lower rate by the IRS).
If a lower percentage rate was granted, write the rate in the space provided and attach a copy of the IRS determination letter. If you file Form 8027 electronically, see Pub. 1239 for instructions on submitting a copy of the IRS determination letter.
If the amount shown on line 6 is more than the amount of tips reported by your employees on line 4c, you must allocate the excess to those employees. Enter the excess on line 7. There are three methods by which you may allocate tips. Check the box on line 7a, b, or c to show the method used.
Establishments that employ fewer than the equivalent of 25 full-time employees (both tipped and nontipped employees) during a payroll period may use the hours-worked method to allocate tips. You will be considered to have employed fewer than the equivalent of 25 full-time employees during a payroll period if the average number of employee hours worked (both tipped and nontipped employees) per business day during a payroll period is less than 200 hours.
To allocate tips by the hours-worked method, follow the steps explained in Line 7b. Gross Receipts Method below. However, for the fraction in step 3 of the gross receipts method, substitute in the numerator (top number) the number of hours worked by each employee who is tipped directly, and in the denominator (bottom number) the total number of hours worked by all employees who are directly tipped for the payroll period. See Regulations section 31.6053-3(f)(1)(iv) for details.
If you use the hours-worked method, be sure to enter on line 7a the average number of employee (both tipped and nontipped) hours worked per business day during the payroll period. If the establishment has more than one payroll period, you must use the payroll period in which the greatest number of workers (both tipped and nontipped) were employed.
If no good-faith agreement (as explained below) applies to the payroll period, you must allocate the difference between total tips reported and 8% of gross receipts using the gross receipts method (or hours-worked method (line 7a)) as follows (see Example for Line 7b. Gross Receipts Method, later).
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.
An allocation can be made under a good-faith agreement. This is a written agreement between you and at least two-thirds of the employees of each occupational category of employees who receive tips (for example, waitstaff, bussers, and maitre d's) working in the establishment when the agreement is adopted. The agreement must:
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.
You must attach a copy of your good-faith agreement when filing a paper Form 8027. Pub. 1239 provides instructions on submitting a copy of your good-faith agreement when filing electronically.
Enter the total number of directly tipped employees who worked at the establishment during 2013. This is the cumulative total of all directly tipped employees who worked at the establishment at any time during the year. If you have a large turnover of directly tipped employees, this number may be large. Do not use this number to determine if you must file Form 8027. Instead, see the Worksheet for Determining Whether To File Form 8027, earlier.
Sign your name and include your title. Then enter the date signed and the best daytime telephone number where the 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|
|1.||$100,000 (gross receipts) x .08 = $8,000|
|2.||$8,000 - $500 (tips reported by indirectly tipped employees) = $7,500|
|3.||Directly tipped employees||Directly tipped employees' share of 8% of the gross||(Times)
Gross receipts ratio
|Employee's share of 8% of gross|
|4.||Directly tipped employees||Employee's share of 8% of the gross||(Minus)
|E||$ 900||450 =||450|
|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)
|Amount of allocation|
|Since employee C has no shortfall, there is no allocation to C.|
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 IRS.gov and type “restaurant” in the search box. You may also call 1-800-829-4933 or 1-800-829-4059 (TDD/TTY for persons who are deaf, hard of hearing, or have a speech disability) Monday–Friday from 7:00 a.m.–7:00 p.m. local time (Alaska and Hawaii follow Pacific time); or send an email to TIP.Program@irs.gov and request information on this program.
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