Table of Contents
- Purpose of Form
- Who Must File
- When To File
- Where To File
- Gross Receipts
- Allocation of Tips
- Reporting Allocated Tips to Employees
- Difference Between Service Charges and Tips
Employers must annually report to the IRS receipts and tips from their large food or beverage establishments. Employers use Form 8027 to report that information. In addition, employers use Form 8027 to determine allocated tips for tipped employees.
These instructions give you some background information about Form 8027. They tell you who must file Form 8027, when and where to file, and how to fill Form 8027 out line by line.
You must file Form 8027 if you are an employer who operates a large food or beverage establishment.
A large food or beverage establishment is a food or beverage operation:
That is located in the 50 states or in the District of Columbia,
Where tipping of food or beverage employees by customers is customary, and
Whose employer normally employed more than 10 employees on a typical business day during the preceding calendar year. We call this the 10-employee test.
A food or beverage operation is any business activity which provides food or beverages for consumption on the premises, other than fast food operations. An operation is a fast food operation only if its customers order, pick up, and pay for food or beverages at a counter or window and then carry the food or beverages to another location (either on or off the premises). Some people call food or beverage operations venues, stores, rooms, outlets, or cost centers.
If you provide food or beverages at more than one location, the activity at each separate location is considered to be a separate food or beverage operation. You could also have more than one food or beverage operation within a single building. Each activity conducted within a single building is treated as a separate location if the customers of the activity, while being provided with food or beverages, occupy an area separate from that occupied by customers of other activities and the gross receipts from the activity are recorded separately.
Generally, tipping isn't considered customary in a cafeteria-style operation or if at least 95% of total sales (other than carryout) had a service charge of 10% or more. See Regulations section 31.6053-3(j)(7) and (18) for more information. If tipping isn't considered customary, the food or beverage operation is not a large food or beverage establishment.
You can complete the optional worksheet to determine if you had more than 10 employees on a typical business day during 2014 and, therefore, must file Form 8027 for 2015. 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 (don't send it to the IRS).
You must consider the following when completing the worksheet.
Include employees at all of your food or beverage operations, even if an individual operation has fewer than 10 employees.
Include all employees at your food or beverage operations, not just food or beverage employees.
Don't include employees at fast food operations.
Don't apply the 10-employee test separately to each food or beverage operation.
Don't consider anyone who owns 50% or more in value of the stock of a corporation as an employee for the 10-employee test. See Regulations section 31.6053-3(j)(9) for more information.
|1.||Enter one-half of the total employee hours worked during the month in 2014 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 2014 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 2015.|
If your answer on line 7 of the worksheet is more than 80 hours, then you meet the 10-employee test.
File Form 8027 (and Form 8027-T when filing more than one Form 8027) by February 29, 2016. However, if you file electronically, the due date is March 31, 2016.
Mail Form 8027 to:
Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45999
When filing a paper Form 8027, attach a copy of your timely filed Form 8809, a copy of your approved waiver (Form 8508) from filing Form 8027 electronically, and a copy of your “lower rate” determination letter from the IRS. Don't attach any other documents.
The law provides for a penalty if you don't file Form 8027 (and Form 8027-T) on time unless you can show reasonable cause for the delay. In addition, if you don't complete an accurate Form 8027, you won't be able to correctly prepare Forms W-2, Wage and Tax Statement, for each directly tipped employee for whom a tip allocation was required to be made. You may be charged penalties for each failure to:
Timely file a correct information return (Forms 8027 and W-2) including failure to file electronically if required; and
Timely furnish a correct Form W-2 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 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 didn't reduce cash sales for charged tips paid out to employees, don't include those charged tips in gross receipts. Don't include state or local taxes in gross receipts.
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.
Internal Revenue Service
National Tip Reporting Compliance
3251 North Evergreen Dr. NE
Grand Rapids, MI 49525
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 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.
Give each employee who has been allocated tips a Form W-2 that shows the allocated amount in box 8. Tip allocations have no effect on withholding income tax, social security tax, or Medicare tax from employees’ wages. Allocated tips aren't subject to withholding and must not be included in boxes 1, 3, 5, and 7 of Form W-2.
If you allocate tips among employees by the methods described later under the instructions for line 7, you aren't 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 correct that employee’s allocation. You must also review the allocable amount of all other employees in the same establishment to ensure that the error didn't distort any other employee’s share by more than 5%.
You must furnish Form W-2 to employees 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 isn't required on the early Form W-2. See If you furnished Form W-2 before the end of the year, later.
Use the current version of Form W-2c to report the corrected allocation on a previously filed Form W-2.
Prepare a new Form W-2 with the correct information and file Copy A with the SSA. Write “Corrected” on the employee’s new copies (B, C, and 2), and furnish them to the employee. Don't write “Corrected” on Copy A of the Form W-2 that you file with the SSA.
Service charges are treated differently from tips for federal tax purposes. Any portion of a service charge that is distributed to an employee is wages, and you must withhold taxes and include the amount on Form W-2 as wages. To accurately report and pay your taxes, you must correctly identify amounts as either a tip or a service charge. Generally, an amount is a tip if:
The payment is made free from compulsion,
The customer has the unrestricted right to determine the amount (including zero),
The payment isn't the subject of negotiation or dictated by employer policy, and
The customer has the right to determine who receives the payment.
The absence of any of these factors creates a doubt as to whether a payment is a tip and may indicate the payment is a service charge.
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