Information Required To Be Reported.—You must report
should include the type of restaurant, days and hours of
for the calendar year the:
operation, type of service including any self-service, the
person (waiter or waitress, cashier, etc.) to whom the
Total charged tips,
customer pays the check, whether the check is paid
Total charged receipts on which there were charged
before or after the meal, and whether alcohol is available.
(d) The past year’s information shown on lines 1
Total amount of service charges of less than 10% paid
through 6 of Form 8027 (if one was filed), as well as: total
as wages to employees,
carryout sales; total charge sales; the percentage of sales
Total tips reported by employees,
for breakfast, lunch, and dinner; average dollar amount of
a guest check; service charge, if any, added to the check;
Gross receipts from food or beverage operations, and
and the percentage of sales with a service charge.
Total allocated tips to employees if total amount of
(e) The type of clientele.
reported tips is less than 8% (or the approved lower rate
discussed later) of gross receipts.
(f) Copy of a representative menu for each meal.
Gross Receipts.—Gross receipts include all receipts
The petition must contain the following statement and
(other than nonallocable receipts) from cash sales, charge
be signed by a responsible person who is authorized to
receipts, charges to a hotel room (excluding tips charged
make and sign a return, statement, or other document.
to the hotel room if your accounting procedures allow
“Under penalties of perjury, I declare that I have
these tips to be segregated out), and the retail value of
examined this application, including accompanying
complimentary food or beverages served to customers as
documents, and to the best of my knowledge and
explained later. Do not include state or local taxes in
belief, the facts presented in support of this petition
gross receipts. Also, do not include in gross receipts
are true, correct, and complete.”
charged tips shown on charge receipts unless you
You must attach to the petition copies of Form 8027 (if
reduced your cash sales by the amount of those tips you
any) filed for the 3 years prior to your petition. If you are
paid in cash to employees.
petitioning for more than one establishment or you want
Complimentary Items.—Food or beverages served to
to know your appeal rights you should see Revenue
customers without charge are considered complimentary
Procedure 86-21, 1986-1 C.B. 560.
if: (a) tipping for providing them is customary at the
A majority of all the directly tipped employees must
establishment, and (b) they are provided in connection
consent to any petition written by an employee. A
with an activity that is engaged in for profit and whose
“majority of employees” means more than half of all the
receipts would not be included in the amount on line 5 of
directly tipped employees employed by the establishment
Form 8027. For example, you would not have to include
at the time the petition is filed. Employee groups MUST
the retail value of complimentary hors d’oeuvres at your
follow the procedures in Regulations section 31.6053-3(h),
bar or a complimentary dessert served to a regular patron
Pub. 531, Reporting Income From Tips, and Revenue
of your restaurant because the receipts of the bar or
restaurant would be included in the amount on line 5. You
would not have to include the value of a fruit basket
The district director will notify you when and for how
placed in a hotel room since, generally, tipping for it is not
long the reduced rate is effective.
customary. However, you would have to include the retail
Reporting Allocated Tips to Employees.—Give each
value of the complimentary drinks served to customers in
employee who has been allocated tips a Form W-2 that
a gambling casino because tipping is customary, the
shows the allocated amount in box 7. The form must be
gambling casino is an activity engaged in for profit, and
received by the employee by January 31 of the following
the gambling receipts of the casino are not included in
year. If employment ends before the end of the year and
the amount on line 5.
the employee asks for the Form W-2, a tip allocation is
Allocation of Tips.—You must allocate tips among
not required on the early Form W-2. However, you may
employees who receive them if the total tips reported to
include on the early Form W-2 the employee’s actual tip
you during any payroll period are less than 8% (or the
allocation or a good faith estimate of the allocation.
approved lower rate) of this establishment’s gross receipts
Signify a good faith estimate by putting the word
for that period.
“estimate” next to the allocated amount in box 7 of the
Generally, the amount allocated is the difference
between the total tips reported by employees and 8% (or
If no allocation was shown on the early Form W-2 or if
the lower rate) of the gross receipts, other than
the estimated allocation on the early form differs from the
nonallocable receipts (receipts for carryout sales and
actual amount by more than 5%, give the employee a
receipts with a service charge added of 10% or more).
Form W-2c, Statement of Corrected Income and Tax
Amounts, during January of the next year.
Lower Rate.—You (or a majority of the employees) may
request a lower rate (but not lower than 2%) by applying
If you allocate tips among employees by the methods
to the district director for the IRS district in which the
described in the Line-by-Line Instructions for lines 7a
establishment is located. The burden of supplying
through 7c, you are not liable to any employee if any
sufficient information to allow the district director to
amount is improperly allocated. However, if the allocation
estimate with reasonable accuracy the actual tip rate of
shown on the employee’s Form W-2 differs from the
this establishment rests with the petitioner. Your petition
correct allocation by more than 5%, you must adjust that
for a lower rate must clearly demonstrate that a rate less
employee’s allocation and must review the allocable
than 8% should apply. It must include the following:
amount of all other employees in the same establishment
to assure that the error did not distort any other
(a) The employer’s name, address, and EIN.
employee’s share by more than 5%. Use Form W-2c to
(b) The establishment’s name, address, and
report the corrected allocation.
You do not have to send to the IRS separate copies of
(c) A detailed description of the establishment that
Forms W-2 showing allocated tips. The IRS will use the
would help to determine the tip rate. The description