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

must reflect the cost to the employer for providing the food or

gross receipts of the establishment. Indirectly tipped employees

beverage plus a reasonable profit factor.

do not receive tips directly from customers. Examples are

bussers, service bartenders, and cooks. Directly tipped

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

employees, such as waitstaff and bartenders, receive tips

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

directly from customers. Employees, such as maitre d’s, who

IRS).

receive tips directly from customers and indirectly through tip

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

splitting or pooling, are treated as directly tipped employees.

space provided and attach a copy of the IRS determination

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

letter.

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

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

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

purposes only. Using this rate does not mean that

attributable to the employee, and the denominator (bottom

directly tipped employees must report only 8%. They

number) is the gross receipts attributable to all directly tipped

CAUTION

should report the amount of actual tips received.

employees. The result is each directly tipped employee’s share

of 8% (or the lower rate) of the gross receipts for the payroll

If you have allocated tips using other than the calendar

period.

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

TIP

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

allocated tips (if any) from your records on line 7. This

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

may occur if you allocated tips based on the time period for

tips the employee reported for the payroll period. The result is

which wages were paid or allocated on a quarterly basis.

each directly tipped employee’s shortfall (if any) for the period.

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

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

more than the amount of tips reported by your employees on

reported by both directly and indirectly tipped employees. The

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

result is the amount that has to be allocated among the directly

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

tipped employees who had a shortfall for the payroll period as

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

figured in step 4.

method used.

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

Line 7a — Hours-worked method. Establishments that

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

employ fewer than the equivalent of 25 full-time employees

the following fraction: the numerator is the employee’s shortfall

(both tipped and nontipped employees) during a payroll period

(figured in step 4), and the denominator is the total shortfall of

may use the hours-worked method to allocate tips. You will be

all directly tipped employees. The result is the amount of

considered to have employed fewer than the equivalent of 25

allocated tips for each directly tipped employee.

full-time employees during a payroll period if the average

number of employee hours worked (both tipped and nontipped

Line 7c — Good-faith agreement. An allocation can be made

employees) per business day during a payroll period is less

under a good-faith agreement. This is a written agreement

than 200 hours.

between you and at least two-thirds of the employees of each

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

occupational category of employees who receive tips (for

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

example, waitstaff, bussers, and maitre d’s) working in the

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

establishment when the agreement is adopted. The agreement

substitute in the numerator (top number) the number of hours

must:

worked by each employee who is tipped directly, and in the

1. Provide for an allocation of the difference between total

denominator (bottom number) the total number of hours worked

tips reported and 8% of gross receipts among employees who

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

receive tips that approximates the actual distribution of tip

See Regulations sections 31.6053-3(j)(19) and

income among the employees;

31.6053-3(f)(1)(iv) for details.

2. Be effective the first day of a payroll period that begins

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

after the date the agreement is adopted, but no later than

7a the average number of employee (both tipped and

January 1 of the next year;

nontipped) hours worked per business day during the payroll

3. Be adopted when there are employees in each

period. If the establishment has more than one payroll period,

occupational category who would be affected by the agreement;

you must use the payroll period in which the greatest number of

and

workers (both tipped and nontipped) were employed.

4. Allow for revocation by a written agreement adopted by at

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

least two-thirds of the employees in occupational categories

agreement (as explained below) applies to the payroll period,

affected by the agreement when it is revoked. The revocation is

you must allocate the difference between total tips reported and

effective only at the beginning of a payroll period.

8% of gross receipts using the gross receipts method (or

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

Line 8 — Total number of directly tipped employees. Enter

below):

the total number of directly tipped employees who worked at the

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

establishment during 2005. This is the cumulative total of all

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

directly tipped employees who worked at the establishment at

lower rate.

any time during the year. If you have a large turnover of directly

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

tipped employees, this number may be large. Do not use this

amount of tips reported by employees who were tipped

number to determine if you must file Form 8027. Instead, see

indirectly for the payroll period. This difference is the directly

the Worksheet for Determining Whether To File Form 8027 on

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

page 1.

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Instructions For Form 8027 Page 4

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