If your employer allocated tips to you, they are shown separately
in box 8 of your Form W-2. They are not included in box 1 with
your wages and reported tips. If box 8 is blank, this discussion does
not apply to you.
What are allocated tips?
These are tips that your employer assigned to you in addition to
the tips you reported to your employer for the year. Your employer
will have done this only if:
- You worked in a restaurant, cocktail lounge, or similar
business that must allocate tips to employees, and
- The tips you reported to your employer were less than your
share of 8% of food and drink sales.
How were your allocated tips figured?
The tips allocated to you are your share of an amount figured by
subtracting the reported tips of all employees from 8% (or an approved
lower rate) of food and drink sales (other than carryout sales and
sales with a service charge of 10% or more). Your share of that amount
was figured using either a method provided by an employer-employee
agreement or a method provided by IRS regulations based on employees'
sales or hours worked. For information about the exact allocation
method used, ask your employer.
Must you report your allocated tips on your tax return?
You must report allocated tips on your tax return unless either of
the following exceptions applies.
- You kept a daily tip record, or other evidence that is as
credible and as reliable as a daily tip record, as required under
rules explained earlier.
- Your tip record is incomplete, but it shows that your actual
tips were more than the tips you reported to your employer plus the
If either exception applies, report your actual tips on your
return. Do not report the allocated tips. See What tips to report
under Reporting Tips on Your Tax Return, earlier.
How to report allocated tips.
If you must report allocated tips on your return, add the amount in
box 8 of your Form W-2 to the amount in box 1. Report the total
as wages on line 7 of Form 1040. (You cannot file Form 1040EZ or Form
Because social security and Medicare taxes were not withheld from
the allocated tips, you must report those taxes as additional tax on
your return. Complete Form 4137, and include the allocated tips on
line 1 of the form. See Reporting social security and Medicare
taxes on tips not reported to your employer under Reporting
Tips on Your Tax Return, earlier.
How to request an approved lower rate.
Your employer can use a tip rate lower than 8% (but not lower than
2%) to figure allocated tips only if the IRS approves the lower rate.
Either the employer or the employees can request approval of a lower
rate by filing a petition with the IRS. The petition must include
specific information about the business that will justify the lower
rate. A user fee must be paid with the petition.
An employee petition can be filed only with the consent of a
majority of the directly-tipped employees (waiters, bartenders, and
others who receive tips directly from customers). The petition must
state the total number of directly-tipped employees and the number of
employees consenting to the petition. Employees filing the petition
must promptly notify the employer, and the employer must promptly give
the IRS a copy of any
Form 8027, Employer's
Annual Information Return of Tip Income and Allocated Tips,
filed by the employer for the previous 3 years.
For more information about how to file a petition and what
information to include, see the instructions for Form 8027.
Previous | First | Next
Publication Index | 2000 Tax Help Archives | Tax Help Archives | Home