income reporting. The program also offers assistance in
$8,000 less $6,200 (total tips reported) = $1,800 (amount allocable
among employees who had a shortfall)
educating tipped employees concerning their obligations
relating to the reporting of any tip income they receive. To
find out more about this program or to participate in a
voluntary tip compliance agreement, visit IRS.gov and type
“restaurant” in the search box. You may also send an email to
and request information on this
An information reporting customer service section is
available to answer questions about reporting on Forms
Since employee C has no shortfall, there is no allocation to C.
8027, W-2, W-3, 1099, and other information returns. If you
have questions about reporting on information returns, call:
In this example, the total amount of allocation is
1-866-455-7438 (toll free),
$1,800 resulting from the rounding off to whole
(304) 263-8700 (toll call), or
(304) 579-4827 (TDD/TTY for persons who are deaf, hard
of hearing, or have a speech disability).
Employer's Optional Worksheet
You can also reach the center by email at firstname.lastname@example.org.
for Tipped Employees
Don't include tax identification numbers (TINs) or
attachments in email correspondence because it isn't secure.
Unreported tip income can lead to additional employer
liability for social security tax and Medicare tax. As a means
Privacy Act and Paperwork Reduction Act Notice. We
of determining if your employees are reporting all of their tips
ask for the information on this form to carry out the Internal
to you, please take a few minutes to voluntarily complete the
Revenue laws of the United States. You are required to give
following worksheet. Completing this worksheet is only for
us the information. We need it to ensure that you are
the employer's information (Don't send it to the IRS).
complying with these laws and to allow us to figure and
collect the right amount of tax.
1. Enter amount from Form 8027, line 1
. . . . . .
Chapter 61, Information and Returns, of Subtitle F,
2. Enter amount from Form 8027, line 2
. . . . . .
Procedure and Administration, requires certain employers to
3. Divide line 1 by line 2, enter as a decimal (at least
report gross receipts, tips reported to them, and any
4 decimal places)
allocated tips; and to furnish the amount of any allocated tips
. . . . . . . . . . . . . . . . . . .
4. Enter amount from Form 8027, line 4c
to affected employees. Section 6053 and its related
. . . . . .
regulations provide the definitions and methodology to be
5. Enter amount from Form 8027, line 5
. . . . . .
used in completing these forms. If you fail to provide this
6. Divide line 4 by line 5, enter as a decimal (at least
information in a timely manner, you may be liable for
4 decimal places)
. . . . . . . . . . . . . . . . . .
penalties as provided by section 6721.
7. Subtract line 6 from line 3; if zero or less, stop
You aren't required to provide the information requested
. . . . . . . . . . . . . . . . . . . . . . . . . . .
8. Potential unreported tips. Multiply line 7 by
on a form that is subject to the Paperwork Reduction Act
unless the form displays a valid OMB control number. Books
. . . . . . . . . . . . . . . . . . . . . . . . . .
or records relating to a form or its instructions must be
retained as long as their contents may become material in
the administration of any Internal Revenue law.
Once you have completed the worksheet:
Generally, tax returns and return information are
If the entry on line 7 is zero or less, your employees are
confidential, as required by section 6103. However, section
probably accurately reporting their tips; however,
6103 allows or requires the Internal Revenue Service to
If the entry on line 8 is greater than zero, depending on the
disclose or give the information shown on your tax return to
type of operation you have and whether or not you have
others as described in the Code. For example, we may
allocated tips, it is possible that your employees aren't
disclose your tax information to the Department of Justice for
reporting all of their tip income to you.
civil and criminal litigation, and to cities, states, the District of
Columbia, and U.S. commonwealths and possessions to
Another quick method to determine if your
administer their tax laws. We may also disclose this
employees are properly reporting all of their tips to
information to other countries under a tax treaty, to federal
you is to compare the rate of tips reported on credit
and state agencies to enforce federal nontax criminal laws, or
sales to the rate of tips reported on cash sales. For example,
to federal law enforcement and intelligence agencies to
if line 3 in the worksheet greatly exceeds the rate determined
from dividing reported cash tips by reportable cash receipts
(that is, total cash receipts less nonallocable cash receipts),
The time needed to complete and file these forms will vary
some of your employees may not be reporting all of their tips
depending on individual circumstances. The estimated
to you and you generally should be showing an amount on
average times are:
line 7 (“Allocation of tips”) of Form 8027.
9 hr., 33 min.
. . . . . . . . . . . . . . . .
Learning about the law or the form
. . .
If it appears that not all tips are being reported to you, the IRS
Preparing and sending the form to the
offers a service called the Tip Rate Determination &
1 hr., 5 min.
. . . . . . . . . . . . . . . . . . . . . . .
Education Program. This program can assist you, the
employer, in implementing more effective methods of tip