Line 3. Total Amount of Service Charges of Less
The 8% rate (or lower rate) is used for tip allocation
purposes only. Using this rate doesn't mean that
Than 10% Paid as Wages to Employees
directly tipped employees must report only 8%. All
Enter the total amount of service charges of less than 10%
directly tipped employees and indirectly tipped employees
that have been added to customers' bills and have been
must report the actual amount of tips they receive.
distributed to your employees for the year.
If you have allocated tips using other than the
Line 4a. Total Tips Reported by Indirectly
calendar year, put an “X” on line 6 and enter the
amount of allocated tips (if any) from your records
on line 7. This may occur if you allocated tips based on the
Enter the total amount of tips reported for the year by
time period for which wages were paid or allocated on a
indirectly tipped employees, such as cooks, bussers, and
service bartenders. Indirectly tipped employees generally
receive their tips from other tipped employees and not
directly from the customer.
Line 7. Allocation of Tips
If the amount shown on line 6 is more than the amount of tips
Line 4b. Total Tips Reported by Directly Tipped
reported by your employees on line 4c, you must allocate the
excess to those employees. Enter the excess on line 7.
Enter the total amount of tips reported for the year by directly
There are three methods by which you may allocate tips.
tipped employees, such as bartenders and waitstaff. Directly
Check the box on line 7a, 7b, or 7c to show the method used.
tipped employees receive tips directly from customers.
Line 7a. Hours-Worked Method
Line 4c. Total Tips Reported
Establishments that employ fewer than the equivalent of 25
Add the amounts on lines 4a and 4b and enter the result on
full-time employees (both tipped and nontipped employees)
line 4c. This amount can't be a negative amount.
during a payroll period may use the hours-worked method to
allocate tips. You will be considered to have employed fewer
than the equivalent of 25 full-time employees during a payroll
period if the average number of employee hours worked
+ Line 4b
(both tipped and nontipped employees) per business day
during a payroll period is less than 200 hours.
To allocate tips by the hours-worked method, follow the
In figuring the tips you should report for 2016, don't
steps explained in Line 7b. Gross Receipts Method below.
include tips received by employees in December
However, for the fraction in step 3 of the gross receipts
2015, but not reported until January 2016. However,
method, substitute in the numerator (top number) the number
include tips received by employees in December 2016, but
of hours worked by each employee who is tipped directly,
not reported until January 2017.
and in the denominator (bottom number) the total number of
hours worked by all employees who are directly tipped for the
Line 5. Gross Receipts From Food and
payroll period. See Regulations section 31.6053-3(f)(1)(iv)
Enter the total gross receipts from the provision of food and
If you use the hours-worked method, be sure to enter on
beverages for this establishment for the year. See Gross
line 7a the average number of employee (both tipped and
Receipts, earlier, for an explanation of what's included in
nontipped) hours worked per business day during the payroll
period. If the establishment has more than one payroll period,
you must use the payroll period in which the greatest number
If you don't charge separately for providing food and
of workers (both tipped and nontipped) were employed.
beverages along with other goods or services (such as a
package deal for food and lodging), make a good-faith
Line 7b. Gross Receipts Method
estimate of the gross receipts from the food and beverages.
If no good-faith agreement (as explained later) applies to the
This estimate must reflect the cost to the employer for
payroll period, you must allocate the difference between total
providing the food and beverages plus a reasonable profit
tips reported and 8% of gross receipts using the gross
receipts method (or hours-worked method (line 7a)) as
follows (see Example for Line 7b. Gross Receipts Method,
Enter the result of multiplying line 5 by 8% (0.08) or a lower
rate (if the establishment was granted a lower rate by the
1. Multiply the establishment's gross receipts (other than
nonallocable receipts) for the payroll period by 8% (0.08) or
the approved lower rate.
If a lower rate was granted, write the rate in the space
2. Subtract from the amount figured in step 1 the total
provided and attach a copy of the IRS determination letter. If
amount of tips reported by employees who were tipped
you file Form 8027 electronically, see Pub. 1239 for
indirectly for the payroll period. This difference is the directly
instructions on submitting a copy of the IRS determination
tipped employees' total share of 8% (or the lower rate) of the
gross receipts of the establishment. Indirectly tipped
employees don't receive tips directly from customers.
Examples are bussers, service bartenders, and cooks.
Directly tipped employees, such as waitstaff and bartenders,
receive tips directly from customers. Employees, such as
Instructions for Form 8027 (2016)