Instructions For Form 8027 (Page 3 of 4) in pdf

than one payroll period, you must use the payroll period in which the

Lines 1 Through 8

greatest number of workers (both tipped and nontipped) were employed.

Credit card sales. You must complete lines 1 and 2 to report tips and

Line 7b — Gross receipts method. If no good-faith agreement (as

sales (receipts) from credit cards and other credit arrangements.

explained below) applies to the payroll period, you must allocate the

Rounding off to whole dollars. You may round off your money entries

difference between total tips reported and 8% of gross receipts using the

to the nearest dollar. To round off cents to the nearest whole dollar on

gross receipts method (or hours-worked method (line 7a)) as follows:

your form, drop amounts under 50 cents and increase amounts from 50

1. Multiply the establishment's gross receipts (other than

to 99 cents to the next dollar. If you do round off, do so for all amounts.

nonallocable receipts) for the payroll period by 8% (.08) or the lower rate.

But if you have to add two or more amounts to figure the amount to enter

2. Subtract from the amount figured in step 1 the total amount of tips

on a line, include cents when adding and only round the total.

reported by employees who were tipped indirectly for the payroll period.

Line 1 — Total charged tips for calendar year 2000. Enter the total

This difference is the directly tipped employees' total share of 8% (or the

amount of tips that are shown on charge receipts for the year.

lower rate) of the gross receipts of the establishment. Indirectly tipped

Line 2 — Total charge receipts showing charged tips. Enter the total

employees do not receive tips directly from customers. Examples are

sales (other than nonallocable receipts as defined on page 2) from

bussers, service bartenders, and cooks. Directly tipped employees, such

charge receipts that had a charged tip shown. Include credit card

as waitstaff and bartenders, receive tips directly from customers.

charges and other credit arrangements and charges to a hotel room

Employees, such as maitre d's, who receive tips directly from customers

unless your normal accounting practice consistently excludes charges to

and indirectly through tip splitting or pooling, are treated as directly

a hotel room. Do not include any state or local taxes in the amounts

tipped employees.

reported.

3. For each employee who is tipped directly, multiply the result in

step 2 by the following fraction: the numerator (top number) is the

Line 3 — Total amount of service charges of less than 10% paid as

wages to employees. Enter the total amount of service charges of less

amount of the establishment's gross receipts attributable to the

than 10% that have been added to customers' bills and have been

employee, and the denominator (bottom number) is the gross receipts

attributable to all directly tipped employees. The result is each directly

distributed to your employees for the year. In general, service charges

added to the bill are not tips since the customer does not have a choice.

tipped employee's share of 8% (or the lower rate) of the gross receipts

These service charges are treated as wages and are includible on Form

for the payroll period.

W-2. For details, see Revenue Ruling 69-28, 1969-1 C.B. 270.

4. From each directly tipped employee's share of 8% or the lower

Line 4a — Total tips reported by indirectly tipped employees. Enter

rate of the gross receipts figured in step 3, subtract the tips the employee

reported for the payroll period. The result is each directly tipped

the total amount of tips reported for the year by indirectly tipped

employee's shortfall (if any) for the period.

employees, such as cooks, bussers, and service bartenders.

5. From the amount figured in step 1, subtract the total tips reported

Line 4b — Total tips reported by directly tipped employees. Enter

by both directly and indirectly tipped employees. The result is the amount

the total amount of tips reported for the year by directly tipped

that has to be allocated among the directly tipped employees who had

employees, such as bartenders and waitstaff.

a shortfall for the payroll period as figured in step 4.

In figuring the tips you should report for 2000, do not include tips

6. For each directly tipped employee who had a shortfall for the

received by employees in December 1999, but not reported until

period as figured in step 4, multiply the amount in step 5 by the following

January 2000. However, include tips received by employees in

CAUTION

fraction: the numerator is the employee's shortfall (figured in step 4), and

December 2000, but not reported until January 2001.

the denominator is the total shortfall of all directly tipped employees. The

Line 5 — Gross receipts from food or beverage operations. Enter

result is the amount of allocated tips for each directly tipped employee.

the total gross receipts from the provision of food or beverages for this

Example. A large food or beverage establishment has gross receipts

establishment for the year.

for a payroll period of $100,000 and has tips reported for the payroll

If you do not charge separately for providing food or beverages along

period of $6,200. Directly tipped employees reported $5,700, while

with other goods or services (such as a package deal for food and

indirectly tipped employees reported $500.

lodging), make a good-faith estimate of the gross receipts from the food

or beverages. This estimate must reflect the cost to the employer for

providing the food or beverage plus a reasonable profit factor.

Directly tipped

Gross receipts

Tips

employees

for payroll period reported

Line 6. Enter the result of multiplying line 5 by 8% (.08) or a lower rate

$18,000

$1,080

(if the establishment was granted a lower rate by the IRS).

16,000

880

If a lower percentage rate was granted, write the rate in the space

23,000

1,810

provided and attach a copy of the IRS determination letter.

17,000

800

12,000

450

The 8% rate (or lower rate) is used for tip allocation purposes

14,000

680

only. Using this rate does not mean that directly tipped employees

$100,000

$5,700

must report only 8%. They should report the amount of actual tips

CAUTION

received.

$100,000 (gross receipts) X .08 = $8,000

$8,000 - $500 (tips reported by indirectly tipped employees) = $7,500

If you have allocated tips using other than the calendar year, put

TIP

an “X” on line 6 and enter the amount of allocated tips (if any) from

your records on line 7. This may occur if you allocated tips based

Directly

Directly tipped

Employee's

on the time period for which wages were paid or allocated on a quarterly

tipped

employee's share

Gross receipts

share of

basis.

employees

of 8% of the gross

ratio

8% of gross

Line 7 — Allocation of tips. If 8% (or an approved lower rate) of gross

$7,500..... X 18,000/100,000... =

$1,350

$7,500..... X 16,000/100,000... =

1,200

receipts (line 6) is more than the amount of tips reported by your

$7,500..... X 23,000/100,000... =

1,725

employees (line 4c), you must allocate the excess to those employees.

$7,500..... X 17,000/100,000... =

1,275

Enter the excess on line 7. There are three methods by which you may

$7,500..... X 12,000/100,000... =

900

allocate tips. Check the box on line 7a, b, or c to show the method used.

1,050

$7,500..... X 14,000/100,000... =

Line 7a — Hours-worked method. Establishments that employ fewer

$7,500

than the equivalent of 25 full-time employees (both tipped and nontipped

employees) during a payroll period may use the hours-worked method

to allocate tips. You will be considered to have employed fewer than the

Directly

Employee's

equivalent of 25 full-time employees during a payroll period if the

tipped

share of

Tips

Employee

average number of employee hours worked (both tipped and nontipped

employees

8% of the gross

reported

shortfall

employees) per business day during a payroll period is less than 200

$1,350.....

$1,080..... =

$270

hours.

1,200.....

880..... =

320

1,725.....

1,810..... =

–

To allocate tips by the hours-worked method, follow the steps for the

1,275.....

800..... =

475

gross receipts method below. However, for the fraction in step 3 of the

900.....

450..... =

450

gross receipts method, substitute in the numerator (top number) the

370

1,050.....

680..... =

number of hours worked by each employee who is tipped directly, and

Total shortfall

$1,885

in the denominator (bottom number) the total number of hours worked

by all employees who are directly tipped for the payroll period. See

$8,000 less $6,200 (total tips reported) = $1,800 (amount

Regulations sections 31.6053-3(j)(19) and 31.6053-3(f)(1)(iv) for details.

allocable among employees who had a shortfall)

If you use the hours-worked method, be sure to enter in line 7a the

average number of employee (both tipped and nontipped) hours worked

per business day during the payroll period. If the establishment has more

Page 3

Instructions For Form 8027 Page 3

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