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. Additional Information Publication 1239, Specifications for Electronic Filing of Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips Publication 1244, Employee's Daily Record of Tips and Report to Employer Publication 15 Circular E, Employer's Tax Guide Instructions for Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips Publication 531, Reporting Tip Income Category Small Business, Self-Employed, Other Business Sub-Category Form W-2, FICA, Medicare, Tips, Employee Benefits