Line 2. Charge Receipts Showing Charged
If you have allocated tips using other than the
calendar year, put an “X” on line 6 and enter the
amount of allocated tips (if any) from your records on
Enter the total sales (other than nonallocable receipts as
line 7. This may occur if you allocated tips based on the time
defined earlier) from charge receipts that had a charged tip
period for which wages were paid or allocated on a quarterly
shown. Include credit card charges and other credit
arrangements and charges to a hotel room unless your
Line 7. Allocation of Tips
normal accounting practice consistently excludes charges to
a hotel room. Do not include any state or local taxes in the
If the amount shown on line 6 is more than the amount of
tips reported by your employees on line 4c, you must
allocate the excess to those employees. Enter the excess
Line 3. Total Amount of Service Charges of
on line 7. There are three methods by which you may
Less Than 10% Paid as Wages to
allocate tips. Check the box on line 7a, b, or c to show the
Enter the total amount of service charges of less than 10%
Line 7a. Hours-Worked Method
that have been added to customers’ bills and have been
Establishments that employ fewer than the equivalent of 25
distributed to your employees for the year. In general,
full-time employees (both tipped and nontipped employees)
service charges added to the bill are not tips since the
during a payroll period may use the hours-worked method to
customer does not have a choice. These service charges
allocate tips. You will be considered to have employed fewer
are treated as wages and are includible on Form W-2.
than the equivalent of 25 full-time employees during a
Line 4a. Tips Reported by Indirectly Tipped
payroll period if the average number of employee hours
worked (both tipped and nontipped employees) per business
day during a payroll period is less than 200 hours.
Enter the total amount of tips reported for the year by
To allocate tips by the hours-worked method, follow the
indirectly tipped employees, such as cooks, bussers, and
steps explained in Line 7b. Gross Receipts Method below.
service bartenders. Indirectly tipped employees generally
However, for the fraction in step 3 of the gross receipts
receive their tips from other tipped employees and not
method, substitute in the numerator (top number) the
directly from the customer.
number of hours worked by each employee who is tipped
Line 4b. Tips Reported by Directly Tipped
directly, and in the denominator (bottom number) the total
number of hours worked by all employees who are directly
tipped for the payroll period. See Regulations sections
Enter the total amount of tips reported for the year by
31.6053-3(j)(19) and 31.6053-3(f)(1)(iv) for details.
directly tipped employees, such as bartenders and waitstaff.
If you use the hours-worked method, be sure to enter on
Directly tipped employees receive tips directly from
line 7a the average number of employee (both tipped and
nontipped) hours worked per business day during the payroll
Line 4c. Total Tips Reported
period. If the establishment has more than one payroll
period, you must use the payroll period in which the greatest
Add the amounts on lines 4a and 4b and enter the result on
number of workers (both tipped and nontipped) were
line 4c. This amount cannot be a negative amount.
Line 7b. Gross Receipts Method
+ Line 4b
If no good-faith agreement (as explained below) applies to
the payroll period, you must allocate the difference between
In figuring the tips you should report for 2011, do not
total tips reported and 8% of gross receipts using the gross
include tips received by employees in December
receipts method (or hours-worked method (line 7a)) as
2010, but not reported until January 2011. However,
follows (see Example for Line 7b. Gross Receipts Method,
include tips received by employees in December 2011, but
not reported until January 2012.
1. Multiply the establishment’s gross receipts (other than
nonallocable receipts) for the payroll period by 8% (.08) or
Line 5. Gross Receipts from Food or
the lower rate.
2. Subtract from the amount figured in step 1 the total
Enter the total gross receipts from the provision of food or
amount of tips reported by employees who were tipped
beverages for this establishment for the year.
indirectly for the payroll period. This difference is the directly
tipped employees’ total share of 8% (or the lower rate) of the
If you do not charge separately for providing food or
gross receipts of the establishment. Indirectly tipped
beverages along with other goods or services (such as a
employees do not receive tips directly from customers.
package deal for food and lodging), make a good-faith
Examples are bussers, service bartenders, and cooks.
estimate of the gross receipts from the food or beverages.
Directly tipped employees, such as waitstaff and bartenders,
This estimate must reflect the cost to the employer for
receive tips directly from customers. Employees, such as
providing the food or beverage plus a reasonable profit
maitre d’s, who receive tips directly from customers and
indirectly through tip splitting or pooling, are treated as
directly tipped employees.
3. For each employee who is tipped directly, multiply the
Enter the result of multiplying line 5 by 8% (.08) or a lower
result in step 2 by the following fraction: the numerator (top
rate (if the establishment was granted a lower rate by the
number) is the amount of the establishment’s gross receipts
attributable to the employee, and the denominator (bottom
If a lower percentage rate was granted, write the rate in
number) is the gross receipts attributable to all directly
the space provided and attach a copy of the IRS
tipped employees. The result is each directly tipped
employee’s share of 8% (or the lower rate) of the gross
The 8% rate (or lower rate) is used for tip allocation
receipts for the payroll period.
purposes only. Using this rate does not mean that
4. From each directly tipped employee’s share of 8% or
directly tipped employees must report only 8%. They
the lower rate of the gross receipts figured in step 3,
should report the amount of actual tips received.
subtract the tips the employee reported for the payroll