Instructions For Form 8027 Page 5
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6Example for Line 7b — Gross receipts method. A large
Employer’s Optional Worksheet
food or beverage establishment has gross receipts for a payroll
for Tipped Employees
period of $100,000 and has tips reported for the payroll period
of $6,200. Directly tipped employees reported $5,700, while
Unreported tip income can lead to additional employer liability
indirectly tipped employees reported $500.
for FICA taxes. As a means of determining if your employees
are reporting all of their tips to you, please take a few minutes
Directly
Gross receipts
to voluntarily complete the following worksheet. Completing this
tipped
for payroll
worksheet is only for the employer’s information (it is not sent to
employees
period
Tips reported
the IRS).
A
$18,000
$1,080
B
16,000
880
1. Enter amount from Form 8027, line 1 . . . . . . . . . 1.
C
23,000
1,810
2. Enter amount from Form 8027, line 2 . . . . . . . . . 2.
D
17,000
800
3. Divide line 1 by line 2, enter as a decimal (at least 4
E
12,000
450
decimal places) . . . . . . . . . . . . . . . . . . . . . . . . 3.
F
14,000
680
4. Enter amount from Form 8027, line 4c . . . . . . . . 4.
Total
$100,000
$5,700
5. Enter amount from Form 8027, line 5 . . . . . . . . . 5.
6. Divide line 4 by line 5, enter as a decimal (at least 4
1.
$100,000 (gross receipts) X .08 = $8,000
decimal places) . . . . . . . . . . . . . . . . . . . . . . . . 6.
2.
$8,000 - $500 (tips reported by indirectly tipped employees) = $7,500
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.
3.
Directly tipped
Directly
employee’s
(Times)
Employee’s
tipped
share of 8% of
Gross receipts
share of 8%
Once you have completed the worksheet:
employees
the gross
ratio
of gross
•
If the entry on line 7 is zero or less, your employees are
probably accurately reporting their tips; however,
A
$7,500
18,000/100,000 =
$1,350
•
If the entry on line 8 is greater than zero, depending on the
B
$7,500
16,000/100,000 =
1,200
C
$7,500
23,000/100,000 =
1,725
type of operation you have and whether or not you have
D
$7,500
17,000/100,000 =
1,275
allocated tips, it is possible that your employees are not
E
$7,500
12,000/100,000 =
900
reporting all of their tip income to you.
F
$7,500
14,000/100,000 =
1,050
Another quick method to determine if your employees
$7,500
TIP
are properly reporting all of their tips to you is to
compare the rate of tips reported on credit sales to the
4.
Directly
Employee’s
rate of tips reported on cash sales. For example, if line 3 in the
tipped
share of 8% of
(Minus)
Employee
worksheet above greatly exceeds the rate determined from
employees
the gross
Tips Reported
shortfall
dividing reported cash tips by reportable cash receipts (that is,
A
$1,350
$1,080 =
$270
total cash receipts less nonallocable cash receipts), some of
B
$1,200
880 =
320
your employees may not be reporting all of their tips to you and
C
$1,725
1,810 =
–
you generally should be showing an amount on line 7
D
$1,275
800 =
475
(“Allocation of tips”) of Form 8027.
E
$ 900
450 =
450
Need Help?
F
$1,050
680 =
370
Total shortfall
$1,885
If it appears that not all tips are being reported to you, the IRS
5.
$8,000 less $6,200 (total tips reported) = $1,800 (amount allocable
offers a service called the Tip Rate Determination & Education
among employees who had a shortfall)
Program. This program can assist you, the employer, in
implementing more effective methods of tip income reporting.
6.
Shortfall
Allocable
(Times)
Amount of
The program also offers assistance in educating tipped
employees
amount
Shortfall ratio
allocation
employees concerning their obligations relating to the reporting
A
$1,800
270/1,885 =
$258
of any tip income they receive. To find out more about this
B
$1,800
320/1,885 =
306
program or to participate in a voluntary tip compliance
D
$1,800
475/1,885 =
454
agreement, visit and type “restaurant” in the
E
$1,800
450/1,885 =
430
Keyword search box. You may also call 1-800-829-4933 or visit
F
$1,800
370/1,885 =
353
/localcontacts for the IRS Taxpayer Assistance
Center in your area; or send an email to
TEC.TIP.Program@irs.gov and request information on this
Since employee C has no shortfall, there is no allocation to
program.
C.
In this example, the total amount of allocation is $1,801
resulting from the rounding off to whole numbers.
TIP
-5-
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