Question
If the reported tips from employees of a large food or beverage establishment are 8% or more of sales, must an employer still allocate tips to the employees?
Answer

No.

  • Tip allocation is only required when the amount of tips reported during any pay period by employees of a large food or beverage establishment is less than 8% (or an approved lower rate) of the gross receipts (other than nonallocable receipts) for the given period.
  • If the tipped employees are reporting 8% or more, there would be no allocated tip amount. No allocation is made to indirectly tipped employees.
  • The employer must still file Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips.
  • The employer is also still required to withhold and pay taxes regarding all reported tips.