Line 4a. Total Tips Reported by Indirectly
Line 7. Allocation of Tips
If the amount shown on line 6 is more than the amount of tips
reported by your employees on line 4c, you must allocate the
Enter the total amount of tips reported for the year by
excess to those employees. Enter the excess on line 7.
indirectly tipped employees, such as cooks, bussers, and
There are three methods by which you may allocate tips.
service bartenders. Indirectly tipped employees generally
Check the box on line 7a, 7b, or 7c to show the method used.
receive their tips from other tipped employees and not
directly from the customer.
Line 7a. Hours-Worked Method
Line 4b. Total Tips Reported by Directly Tipped
Establishments that employ fewer than the equivalent of 25
full-time employees (both tipped and nontipped employees)
during a payroll period may use the hours-worked method to
Enter the total amount of tips reported for the year by directly
allocate tips. You will be considered to have employed fewer
tipped employees, such as bartenders and waitstaff. Directly
than the equivalent of 25 full-time employees during a payroll
tipped employees receive tips directly from customers.
period if the average number of employee hours worked
(both tipped and nontipped employees) per business day
Line 4c. Total Tips Reported
during a payroll period is less than 200 hours.
Add the amounts on lines 4a and 4b and enter the result on
To allocate tips by the hours-worked method, follow the
line 4c. This amount can't be a negative amount.
steps explained in Line 7b. Gross Receipts Method below.
However, for the fraction in step 3 of the gross receipts
method, substitute in the numerator (top number) the number
+ Line 4b
of hours worked by each employee who is tipped directly,
and in the denominator (bottom number) the total number of
hours worked by all employees who are directly tipped for the
payroll period. See Regulations section 31.6053-3(f)(1)(iv)
In figuring the tips you should report for 2015, don't
include tips received by employees in December
If you use the hours-worked method, be sure to enter on
2014, but not reported until January 2015. However,
line 7a the average number of employee (both tipped and
include tips received by employees in December 2015, but
nontipped) hours worked per business day during the payroll
not reported until January 2016.
period. If the establishment has more than one payroll period,
you must use the payroll period in which the greatest number
Line 5. Gross Receipts From Food and
of workers (both tipped and nontipped) were employed.
Line 7b. Gross Receipts Method
Enter the total gross receipts from the provision of food and
beverages for this establishment for the year.
If no good-faith agreement (as explained later) applies to the
payroll period, you must allocate the difference between total
If you don't charge separately for providing food and
tips reported and 8% of gross receipts using the gross
beverages along with other goods or services (such as a
receipts method (or hours-worked method (line 7a)) as
package deal for food and lodging), make a good-faith
follows (see Example for Line 7b. Gross Receipts Method,
estimate of the gross receipts from the food and beverages.
This estimate must reflect the cost to the employer for
1. Multiply the establishment's gross receipts (other than
providing the food and beverages plus a reasonable profit
nonallocable receipts) for the payroll period by 8% (.08) or
the approved lower rate.
2. Subtract from the amount figured in step 1 the total
Enter the result of multiplying line 5 by 8% (.08) or a lower
amount of tips reported by employees who were tipped
rate (if the establishment was granted a lower rate by the
indirectly for the payroll period. This difference is the directly
tipped employees' total share of 8% (or the lower rate) of the
gross receipts of the establishment. Indirectly tipped
If a lower rate was granted, write the rate in the space
employees don't receive tips directly from customers.
provided and attach a copy of the IRS determination letter. If
Examples are bussers, service bartenders, and cooks.
you file Form 8027 electronically, see Pub. 1239 for
Directly tipped employees, such as waitstaff and bartenders,
instructions on submitting a copy of the IRS determination
receive tips directly from customers. Employees, such as
maitre d's, who receive tips directly from customers and
indirectly through tip splitting or pooling, are treated as
The 8% rate (or lower rate) is used for tip allocation
directly tipped employees.
purposes only. Using this rate doesn't mean that
directly tipped employees must report only 8%. All
3. For each employee who is tipped directly, multiply the
directly tipped employees and indirectly tipped employees
result in step 2 by the following fraction: the numerator (top
must report the actual amount of tips they receive.
number) is the amount of the establishment's gross receipts
attributable to the employee, and the denominator (bottom
If you have allocated tips using other than the
number) is the gross receipts attributable to all directly tipped
calendar year, put an “X” on line 6 and enter the
employees. The result is each directly tipped employee's
amount of allocated tips (if any) from your records
share of 8% (or the lower rate) of the gross receipts for the
on line 7. This may occur if you allocated tips based on the
time period for which wages were paid or allocated on a
4. From each directly tipped employee's share of 8% or
the lower rate of the gross receipts figured in step 3, subtract