include the value of a fruit basket placed in a hotel room in
Treasury” for the amount of the user fee required for
gross receipts since, generally, tipping for it isn't customary.
Allocation of Tips
For the current user fee amount, consult the first revenue
procedure of the year (for example, Rev. Proc. 2015-1,
You must allocate tips among employees who receive them if
2015-1 I.R.B. 1, available at
the total tips reported to you during any payroll period are
pt03.html). This revenue procedure is updated annually as
less than 8% (or the approved lower rate) of this
the first revenue procedure of the year, but it may be
establishment's gross receipts for that period.
modified or amplified during the year. The user fees are
posted in Appendix A of the revenue procedure. Since the
Generally, the amount allocated is the difference between
taxpayer is requesting a determination letter, the payment for
the total tips reported by employees and 8% (or the lower
the user fee must be submitted along with the petition for the
rate) of the gross receipts, other than nonallocable receipts.
Lower rate. You (or a majority of the employees) may
A majority of all the directly tipped employees must
request a lower rate (but not lower than 2%) by submitting a
consent to any petition written by an employee. A “majority of
employees” means more than half of all directly tipped
employees employed by the establishment at the time the
Internal Revenue Service
petition is filed. Employee groups must follow the procedures
National Tip Reporting Compliance
in Regulations section 31.6053-3(h); Pub. 531, Reporting Tip
3251 North Evergreen Dr. NE
Income; and Rev. Proc. 86-21.
Grand Rapids, MI 49525
The IRS will notify you when and for how long the reduced
rate is effective.
Don't mail Form 8027 to this address. See Where To
Note. You must attach a copy of your “lower rate”
determination letter from the IRS when filing a paper Form
The burden of supplying sufficient information to allow the
8027. See Pub. 1239 for instructions on submitting a copy of
IRS to estimate with reasonable accuracy the actual tip rate
your “lower rate” determination letter from the IRS when filing
of the establishment rests with the petitioner. Your petition for
a lower rate must clearly demonstrate that a rate less than
Reporting Allocated Tips to
8% should apply. It must include the following information.
Employer's name, address, and EIN.
Establishment's name, address, and establishment
Give each employee who has been allocated tips a Form
W-2 that shows the allocated amount in box 8. Tip allocations
Detailed description of the establishment that would help
have no effect on withholding income tax, social security tax,
to determine the tip rate. The description should include the
or Medicare tax from employees’ wages. Allocated tips aren't
type of restaurant, days and hours of operation, type of
subject to withholding and must not be included in boxes 1,
service including any self-service, the person (waiter or
3, 5, and 7 of Form W-2.
waitress, cashier, etc.) to whom the customer pays the
check, whether the check is paid before or after the meal,
If you allocate tips among employees by the methods
and whether alcohol is available.
described later under the instructions for line 7, you aren't
Past year's information shown on lines 1 through 6 of Form
liable to any employee if any amount is improperly allocated.
8027 as well as total carryout sales; total charge sales;
However, if the allocation shown on the employee’s Form
percentage of sales for breakfast, lunch, and dinner; average
W-2 differs from the correct allocation by more than 5%, you
dollar amount of a guest check; service charge, if any, added
must correct that employee’s allocation. You must also
to the check; and the percentage of sales with a service
review the allocable amount of all other employees in the
same establishment to ensure that the error didn't distort any
Type of clientele.
other employee’s share by more than 5%.
Copy of a representative menu for each meal.
The petition must contain the following statement and be
You must furnish Form W-2 to employees by January 31
signed by a responsible person who is authorized to make
of the following year. If employment ends before the end of
and sign a return, statement, or other document.
the year and the employee asks for the Form W-2, a tip
allocation isn't required on the early Form W-2. See If you
furnished Form W-2 before the end of the year, later.
“Under penalties of perjury, I declare that I have
examined this petition, including accompanying
Correcting allocated tips reported on Form W-2 furnish-
ed to an employee in January. If you furnished Form W-2
documents, and to the best of my knowledge and
to an employee in January and later discover an error that
belief, the facts presented in support of this petition are
requires a correction (as discussed earlier), the method for
true, correct, and complete.”
making a correction depends on whether Form W-2 has
been filed with the Social Security Administration (SSA).
You must attach to the petition copies of Form 8027 (if
If you filed Form W-2 with the SSA. Use the current
any) filed for the 3 years before your petition. If you are
version of Form W-2c to report the corrected allocation on a
petitioning for more than one establishment or you want to
previously filed Form W-2.
know your appeal rights, see Rev. Proc. 86-21, 1986 1 C.B.
If you furnished Form W-2 to an employee but didn't
560 for additional information. Also include with your petition
file it with the SSA. Prepare a new Form W-2 with the
a check or money order made payable to the “United States
correct information and file Copy A with the SSA. Write
“Corrected” on the employee’s new copies (B, C, and 2), and