# Instructions For Form 8027 Page 4

Once you have completed the worksheet:
Directly
Gross receipts
tipped
for payroll
If the entry on line 7 is zero or less, your employees are probably
employees
period
Tips reported
accurately reporting their tips; however,
If the entry on line 8 is greater than zero, depending on the type of
operation you have and whether or not you have allocated tips, it is
A
\$18,000
\$1,080
possible that your employees are not reporting all of their tip income to
B
16,000
880
you.
C
23,000
1,810
D
17,000
800
Another quick method to determine if your employees are
TIP
properly reporting all of their tips to you is to compare the rate of
E
12,000
450
tips reported on credit sales to the rate of tips reported on cash
F
14,000
680
sales. For example, if line 3 in the worksheet above greatly exceeds the
Total
\$100,000
\$5,700
rate determined from dividing reported cash tips by reportable cash
receipts (that is, total cash receipts less nonallocable cash receipts),
1.
\$100,000 (gross receipts) X .08 = \$8,000
some of your employees may not be reporting all of their tips to you and
2.
\$8,000 - \$500 (tips reported by indirectly tipped employees) = \$7,500
you generally should be showing an amount on line 7 (“Allocation of
tips”) of Form 8027.
3.
Directly tipped
Directly
employee’s
(Times)
Employee’s
Need Help?
tipped
share of 8% of
Gross receipts
share of 8%
If it appears that not all tips are being reported to you, the IRS offers a
employees
the gross
ratio
of gross
service called the Tip Rate Determination & Education Program. This
program can assist you, the employer, in implementing more effective
A
\$7,500
18,000/100,000 =
\$1,350
methods of tip income reporting. The program also offers assistance in
B
\$7,500
16,000/100,000 =
1,200
educating tipped employees concerning their obligations relating to the
C
\$7,500
23,000/100,000 =
1,725
D
\$7,500
17,000/100,000 =
1,275
program or to participate in a voluntary tip compliance agreement,
E
\$7,500
12,000/100,000 =
900
contact your local IRS Taxpayer Education and Communication (TEC)
F
\$7,500
14,000/100,000 =
1,050
office. You may call 1-800-829-4933 for the IRS TEC office in your area
\$7,500
or send an email to TEC.TIP.Program@irs.gov and request information
on this program.
4.
Directly
Employee’s
tipped
share of 8% of
(Minus)
Employee
Privacy Act and Paperwork Reduction Act Notice. We ask for the
employees
the gross
Tips Reported
shortfall
information on this form to carry out the Internal Revenue laws of the
United States. You are required to give us the information. We need it
A
\$1,350
\$1,080 =
\$270
to ensure that you are complying with these laws and to allow us to
B
\$1,200
880 =
320
figure and collect the right amount of tax.
C
\$1,725
1,810 =
Chapter 61, Information and Returns, of Subtitle F, Procedure and
D
\$1,275
800 =
475
Administration, requires certain employers to report gross receipts, tips
E
\$ 900
450 =
450
reported to them, and any allocated tips; and to furnish the amount of
F
\$1,050
680 =
370
any allocated tips to affected employees. Section 6053 and its related
Total shortfall
\$1,885
regulations provide the definitions and methodology to be used in
5.
\$8,000 less \$6,200 (total tips reported) = \$1,800 (amount allocable
completing these forms. If you fail to provide this information in a timely
among employees who had a shortfall)
manner you may be liable for penalties as provided by section 6721.
You are not required to provide the information requested on a form
6.
Shortfall
Allocable
(Times)
Amount of
that is subject to the Paperwork Reduction Act unless the form displays
employees
amount
Shortfall ratio
allocation
a valid OMB control number. Books or records relating to a form or its
A
\$1,800
270/1,885 =
\$258
instructions must be retained as long as their contents may become
material in the administration of any Internal Revenue law.
B
\$1,800
320/1,885 =
306
D
\$1,800
475/1,885 =
454
Generally, tax returns and return information are confidential, as
E
\$1,800
450/1,885 =
430
required by section 6103. However, section 6103 allows or requires the
Internal Revenue Service to disclose or give the information shown on
F
\$1,800
370/1,885 =
353
may disclose your tax information to the Department of Justice for civil
Because employee C has no shortfall, C gets no allocation.
and criminal litigation, and to cities, states, and the District of Columbia
In this example, the total amount of allocation is \$1,801 resulting
for use in administering their tax laws. We may also disclose this
TIP
from the rounding off to whole numbers.
information to other countries under a tax treaty, to federal and state
agencies to enforce federal nontax criminal laws, or to federal law
enforcement and intelligence agencies to combat terrorism.
Employer’s Optional Worksheet
The time needed to complete and file these forms will vary
depending on individual circumstances. The estimated average times
for Tipped Employees
are:
Forms
8027
8027-T
taxes. As a means of determining if your employees are reporting all of
their tips to you, please take a few minutes to voluntarily complete the
Recordkeeping . . . . . . . . . . . . . . . . . . .
9 hr., 47 min.
43 min.
following worksheet. Completing this worksheet is only for the
Learning about the law or the form . . . . .
53 min.
employer’s information (it is not sent to the IRS).
Preparing and sending the form to the IRS
1 hr.
If you have comments concerning the accuracy of these time
1. Enter amount from Form 8027, line 1 . . . . . . . . . 1.
estimates or suggestions for making these forms simpler, we would be
2. Enter amount from Form 8027, line 2 . . . . . . . . . 2.
happy to hear from you. You can write to Internal Revenue Service, Tax
3. Divide line 1 by line 2, enter as a decimal (at least 4
Products Coordinating Committee, SE:W:CAR:MP:T:T:SP, 1111
decimal places) . . . . . . . . . . . . . . . . . . . . . . . . 3.
Constitution Ave. NW, Washington, DC, 20224. Do not send the tax
4. Enter amount from Form 8027, line 4c . . . . . . . . 4.
forms to this address. Instead, see Where To File on page 1.
5. Enter amount from Form 8027, line 5 . . . . . . . . . 5.
6. Divide line 4 by line 5, enter as a decimal (at least 4
decimal places) . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Subtract line 6 from line 3; if zero or less, stop here 7.
8. Potential unreported tips. Multiply line 7 by line 5
8.
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