Instructions For Form 8027 Page 4
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4Line 7b—Gross receipts method.—If no good faith
(c)
Directly
Directly tipped
Employee’s
tipped
employee’s share
Gross receipts
share of
agreement (as explained in the line 7c instruction)
employees
of 8% of the gross
ratio
8% of gross
applies to the payroll period, you must allocate the
difference between total tips reported and 8% of gross
A
$7,500
18,000/100,000
=
$1,350
receipts using the following steps:
B
7,500
16,000/100,000
=
1,200
C
7,500
23,000/100,000
=
1,725
(a) Multiply the establishment’s gross receipts (other
D
7,500
17,000/100,000
=
1,275
than nonallocable receipts) for the payroll period by 8%
E
7,500
12,000/100,000
=
900
(.08) or the lower rate.
F
7,500
14,000/100,000
=
1,050
$7,500
(b) Subtract from the amount figured in step (a) the
(d)
Directly
Employee’s
total amount of tips reported by employees who were
tipped
share of
Tips
Employee
tipped indirectly for the payroll period. This difference is
employees
8% of the gross
reported
shortfall
the directly tipped employees’ total share of 8% (or the
lower rate) of the gross receipts of the establishment.
A
$1,350
–
$1,080
=
$270
B
1,200
–
880
=
320
Indirectly tipped employees do not receive tips directly
C
1,725
–
1,810
=
—
from customers. Examples are employees who bus
D
1,275
–
800
=
475
tables, service bartenders, and cooks. Directly tipped
E
900
–
450
=
450
employees, such as waiters, waitresses, and bartenders,
F
1,050
–
680
=
370
Total shortfall $1,885
receive tips directly from customers. Employees who
receive tips directly from customers and indirectly through
(e) $8,000 – $6,200 (total tips reported) = $1,800 (amount
tip splitting or pooling, such as maitre d’s, are treated as
allocable among employees who had a shortfall)
directly tipped employees.
(f)
Shortfall
Allocable
Shortfall
Amount of
(c) For each employee who is tipped directly, multiply
employees
amount
ratio
allocation
the result in step (b) by the following fraction: the
A
$1,800
270/1,885
=
$258
numerator (top number) is the amount of the
B
1,800
320/1,885
=
306
establishment’s gross receipts attributable to the
D
1,800
475/1,885
=
454
E
1,800
450/1,885
=
430
employee, and the denominator (bottom number) is the
F
1,800
370/1,885
=
353
gross receipts attributable to all directly tipped
Since employee C has no shortfall, there is no
employees. The result is each directly tipped employee’s
allocation to C.
share of 8% (or the lower rate) of the gross receipts for
the payroll period.
Note: In this example, the total amount of allocation is
$1,801 resulting from the rounding off to whole numbers.
(d) From each directly tipped employee’s share of 8%
or the lower rate of the gross receipts figured in step (c),
Line 7c—Good faith agreement.—An allocation can be
subtract the tips the employee reported for the payroll
made under a good faith agreement. This is a written
period. The result is each directly tipped employee’s
agreement between you and at least two-thirds of the
shortfall (if any) for the period.
employees of each occupational category of employees
who receive tips (e.g., waiters, waitresses, employees
(e) From the amount figured in step (a) (8% or the
who bus tables, and maitre d’s) working in the
lower rate of the gross receipts), subtract the total tips
establishment when the agreement is adopted. The
reported by both directly and indirectly tipped employees.
agreement must:
The result is the amount that has to be allocated among
the directly tipped employees who had a shortfall for the
(a) Provide for an allocation of the difference between
payroll period as figured in step (d).
total tips reported and 8% of gross receipts among
(f) For each directly tipped employee who had a
employees who receive tips that approximates the actual
distribution of tip income among the employees;
shortfall for the period as figured in step (d), multiply the
amount in step (e) by the following fraction: the
(b) Be effective the first day of a payroll period that
numerator is the employee’s shortfall (figured in step (d)),
begins after the date the agreement is adopted, but no
and the denominator is the total shortfall of all directly
later than January 1 of the next year;
tipped employees. The result is the amount of allocated
(c) Be adopted when there are employees in each
tips for each directly tipped employee.
occupational category who would be affected by the
Example: A large food or beverage establishment has
agreement; AND
gross receipts for a payroll period of $100,000 and has
(d) Allow for revocation by a written agreement adopted
tips reported for the payroll period of $6,200. Directly
by at least two-thirds of the employees in occupational
tipped employees reported $5,700, while indirectly tipped
categories affected by the agreement when it is revoked.
employees reported $500.
The revocation is effective only at the beginning of a
payroll period.
Directly tipped
Gross receipts
employees
for payroll period
Tips reported
Line 8—Total number of directly tipped employees.—
Enter the total number of directly tipped employees who
A
$18,000
$1,080
B
16,000
880
worked at the establishment during 1992. This is the
C
23,000
1,810
cumulative total of all directly tipped employees who
D
17,000
800
worked at the establishment at any time during the year.
E
12,000
450
If you have a large turnover of directly tipped employees,
F
14,000
680
this number may be large.
$100,000
$5,700
The allocation, figured using steps (a) through (f), would
Do not use this number to determine if you must file
be as follows:
Form 8027. The filing requirement (more than 10
employees) is based on the number of all employees
(a) $100,000 (gross receipts)
.08 = $8,000
working at the establishment, not just the number of
(b) $8,000 – $500 (tips reported by indirectly tipped
directly tipped employees.
employees) = $7,500
Page 4
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