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Tip Reporting

Tuesday, November 8, 2016   (0 Comments)
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What You Need to Know About IRA Tipping Rules & Form 8027


By Bret Curtis, CPA, JD, LLM
Shareholder, Mize Houser & Company, PA




Imagine opening a notice from the IRS requesting you to file Form 8027 (Employer’s Annual Information Return of Tip Income and Allocated Tips) for the past few years. Surprise? Yes, and not a good surprise. Internal Revenue Service Form 8027 is an annual information return prepared by an employer who operates a large food or beverage establishment. The form requires the large employer to report gross receipts and tips. The form also calculates whether the employer is required to allocate tips to employees. Large discrepancies between employer- and employee-reported tips are a red flag to the IRS that employees are underreporting their tips. The form is due to the IRS by February 28th if filing in paper format or March 31st if you are filing electronically. If you are not familiar with Form 8027, here is what you need to know:


Who is required to file?

This is a two-factor test: Did the restaurant or operation serve food and beverages for on-site consumption where tipping is customary? Did the restaurant employ more than 10 workers on a typical business day during the prior year? If both answers are “Yes”, then you are required to file Form 8027. New businesses that opened during the tax year file a Form 8027 if, during any two consecutive calendar months, the average number of hours worked each business day by all employees was more than 80 hours. Quick service operations that do not permit tipping are not required to file Form 8027


What information do I need to pull together?

You will be required to show gross receipts, charge receipts, credit/debit card charged tips, service charges, and the total amount of tips employees reported during the year. If your employees fail to report tips equal to at least 8% of your total gross receipts, you must allocate tips to those employees that had a reporting shortfall in a payroll period. The allocated tips also have to be reported on an employee’s Form W-2 in Box 8. Since allocating tips is such an unsavory process, the employer should conduct training programs for employees and provide information about tip reporting rules. Training should occur with every newly hired employee-- and at least quarterly for the entire staff. Any employee who receives at least $20 in tips (either directly or from a shared tip pool) in a month should report these tips to the employer every payroll period. Keep in mind this is an overview of the IRS tipping rules. Should you have questions, please consult your tax advisor or Bret Curtis with Mize Houser & Company P.A. for additional help. 




We encourage you to contact a KRHA Allied partner if you have specific questions regarding this topic.



Mize Houser & Company P.A.

Bret Curtis, CPA, JD, LLM Shareholder



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