Instructions For Form 8027 (Page 4 of 6) in pdf

amounts under 50 cents and increase amounts from 50 to

If you have allocated tips using other than the

99 cents to the next dollar. For example, $1.39 becomes $1

calendar year, put an “X” on line 6 and enter the

TIP

and $2.50 becomes $3.

amount of allocated tips (if any) from your records on

line 7. This may occur if you allocated tips based on the time

If you have to add two or more amounts to figure the

period for which wages were paid or allocated on a quarterly

amount to enter on a line, include cents when adding the

basis.

amounts and round off only the total.

Line 7. Allocation of tips. If the amount shown on line 6 is

Line 1. Charged tips for calendar year 2010. Enter the

more than the amount of tips reported by your employees on

total amount of tips that are shown on charge receipts for

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

the year.

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

which you may allocate tips. Check the box on line 7a, b, or

Line 2. Charge receipts showing charged tips. Enter the

c to show the method used.

total sales (other than nonallocable receipts as defined on

page 2) from charge receipts that had a charged tip shown.

Line 7a. Hours-worked method. Establishments that

Include credit card charges and other credit arrangements

employ fewer than the equivalent of 25 full-time employees

and charges to a hotel room unless your normal accounting

(both tipped and nontipped employees) during a payroll

practice consistently excludes charges to a hotel room. Do

period may use the hours-worked method to allocate tips.

not include any state or local taxes in the amounts reported.

You will be considered to have employed fewer than the

equivalent of 25 full-time employees during a payroll period

Line 3. Total amount of service charges of less than

if the average number of employee hours worked (both

10% paid as wages to employees. Enter the total amount

tipped and nontipped employees) per business day during a

of service charges of less than 10% that have been added

payroll period is less than 200 hours.

to customers’ bills and have been distributed to your

employees for the year. In general, service charges added

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

to the bill are not tips since the customer does not have a

steps explained in Line 7b. Gross receipts method below.

choice. These service charges are treated as wages and are

However, for the fraction in step 3 of the gross receipts

includible on Form W-2.

method, substitute in the numerator (top number) the

number of hours worked by each employee who is tipped

Line 4a. Tips reported by indirectly tipped employees.

directly, and in the denominator (bottom number) the total

Enter the total amount of tips reported for the year by

number of hours worked by all employees who are directly

indirectly tipped employees, such as cooks, bussers, and

tipped for the payroll period. See Regulations sections

service bartenders. Indirectly tipped employees generally

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

receive their tips from other tipped employees and not

directly from the customer.

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

line 7a the average number of employee (both tipped and

Line 4b. Tips reported by directly tipped employees.

nontipped) hours worked per business day during the payroll

Enter the total amount of tips reported for the year by

period. If the establishment has more than one payroll

directly tipped employees, such as bartenders and waitstaff.

period, you must use the payroll period in which the greatest

Directly tipped employees receive tips directly from

number of workers (both tipped and nontipped) were

customers.

employed.

Line 4c. Total tips reported. Add the amounts on lines 4a

Line 7b. Gross receipts method. If no good-faith

and 4b and enter the result on line 4c. (This amount cannot

agreement (as explained below) applies to the payroll

be a negative amount.)

period, you must allocate the difference between total tips

reported and 8% of gross receipts using the gross receipts

Line 4a

method (or hours-worked method (line 7a)) as follows (see

+ Line 4b

the example on page 5).

Line 4c

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

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

In figuring the tips you should report for 2010, do not

the lower rate.

include tips received by employees in December

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

2009, but not reported until January 2010. However,

CAUTION

amount of tips reported by employees who were tipped

include tips received by employees in December 2010, but

indirectly for the payroll period. This difference is the directly

not reported until January 2011.

tipped employees’ total share of 8% (or the lower rate) of the

Line 5. Gross receipts from food or beverage

gross receipts of the establishment. Indirectly tipped

operations. Enter the total gross receipts from the

employees do not receive tips directly from customers.

provision of food or beverages for this establishment for the

Examples are bussers, service bartenders, and cooks.

year.

Directly tipped employees, such as waitstaff and bartenders,

receive tips directly from customers. Employees, such as

If you do not charge separately for providing food or

maitre d’s, who receive tips directly from customers and

beverages along with other goods or services (such as a

indirectly through tip splitting or pooling, are treated as

package deal for food and lodging), make a good-faith

directly tipped employees.

estimate of the gross receipts from the food or beverages.

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

This estimate must reflect the cost to the employer for

result in step 2 by the following fraction: the numerator (top

providing the food or beverage plus a reasonable profit

number) is the amount of the establishment’s gross receipts

factor.

attributable to the employee, and the denominator (bottom

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

number) is the gross receipts attributable to all directly

a lower rate (if the establishment was granted a lower rate

tipped employees. The result is each directly tipped

by the IRS).

employee’s share of 8% (or the lower rate) of the gross

receipts for the payroll period.

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

4. From each directly tipped employee’s share of 8% or

the space provided and attach a copy of the IRS

the lower rate of the gross receipts figured in step 3,

determination letter.

subtract the tips the employee reported for the payroll

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

period. The result is each directly tipped employee’s shortfall

purposes only. Using this rate does not mean that

(if any) for the period.

directly tipped employees must report only 8%. They

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

CAUTION

should report the amount of actual tips received.

tips reported by both directly and indirectly tipped

-4-

Instructions For Form 8027 Page 4

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