| Instructions for Form 8027 |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
File a separate Form 8027 for each large food or beverage establishment. Use Form 8027-T, Transmittal of Employer's Annual
Information Return of
Tip Income and Allocated Tips, when filing more than one Form 8027. Do not attach any unrelated correspondence.
Name and address of establishment and employer identification number.
If your preprinted name, EIN, or address information on Form 8027 and/or Form 8027-T is not correct, cross out any
errors and print the correct
information. If Form 8027 and/or Form 8027-T does not have your preprinted information, type or print the name and address
of the establishment. They
may be different from your mailing address, as in the case of employers who have more than one establishment. If mail is not
delivered to the street
address of the establishment, enter the P.O. box number. The employer identification number (EIN) should be the same as the
number on the Forms W-2
that you give to the employees and the Form 941, Employer's QUARTERLY Federal Tax Return that you file to report wages and
taxes for employees working
for the establishment. Once you have filed a return, a preaddressed Form 8027 and/or Form 8027-T will be sent to you annually.
Type of establishment.
Check the box (check only one box) on the form that best describes the food or beverage operation at this establishment:
-
An establishment that serves evening meals only (with or without alcoholic beverages).
-
An establishment that serves evening and other meals (with or without alcoholic beverages).
-
An establishment that serves only meals other than evening meals (with or without alcoholic beverages).
-
An establishment that serves food, if at all, only as an incidental part of the business of serving alcoholic beverages.
Employer's name and address.
Enter the name and address of the entity or individual whose EIN is shown above. Enter foreign addresses as follows:
city, province or state, and
country. Do not abbreviate the name of the country.
Establishment number.
Enter a five-digit number to identify the individual establishments that you are reporting under the same EIN. Give
each establishment a separate
number. For example, each establishment could be numbered consecutively, starting with 00001.
Attributed Tip Income Program (ATIP).
Check this box for the election to participate in ATIP. You can elect to participate in ATIP by filing Form 8027
even if you are not required to
do so under current regulations. See Who Must File on page 1. If you do not meet the requirements for filing Form 8027, but wish to
participate in ATIP, you must check the ATIP box on Form 8027 to notify the IRS of your participation in ATIP, complete lines
1 through 5, and send
Form 8027 to the IRS. If you have more than one establishment, you must satisfy the requirements for each establishment that
is going to participate.
To qualify, at least 20 percent of your establishment's gross receipts from the sale of food or beverages for the
prior calendar year must come
from charged receipts that show charged tips. Also, at least 75% of the tipped employees at your establishment must agree
to participate in ATIP. You
must see Rev. Proc. 2006-30 for complete details on qualifications and requirements for participating in ATIP and notifying
the IRS.
Credit card sales.
If the credit or debit charge receipts reflect tips, then you must enter on lines 1 and 2 the appropriate amounts shown on the credit
card or debit card charge statements. See instructions for line 1 below.
Rounding off to whole dollars.
You may round off cents to whole dollars on your return and schedules. If you do round to whole dollars, you must
round all amounts. To round, drop
amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50
becomes $3.
If you have to add two or more amounts to figure the amount to enter on a line, include cents when adding the amounts
and round off only the total.
Line 1. Total charged tips for calendar year 2006.
Enter the total amount of tips that are shown on charge receipts for the year.
Line 2. Total charge receipts showing charged tips.
Enter the total sales (other than nonallocable receipts as defined on page 2) from charge receipts that had a charged
tip shown. Include credit
card charges and other credit arrangements and charges to a hotel room unless your normal accounting practice consistently
excludes charges to a hotel
room. Do not include any state or local taxes in the amounts reported.
Line 3. Total amount of service charges of less than 10% paid as wages to employees.
Enter the total amount of service charges of less than 10% that have been added to customers' bills and have been
distributed to your employees for
the year. In general, service charges added to the bill are not tips since the customer does not have a choice. These service
charges are treated as
wages and are includible on Form W-2. For details, see Rev. Rul. 69-28, 1969-1 C.B. 270.
Line 4a. Total tips reported by indirectly tipped employees.
Enter the total amount of tips reported for the year by indirectly tipped employees, such as cooks, bussers, and service
bartenders.
Line 4b. Total tips reported by directly tipped employees.
Enter the total amount of tips reported for the year by directly tipped employees, such as bartenders and waitstaff.
In figuring the tips you should report for 2006, do not include tips received by employees in December 2005, but not reported
until January 2006.
However, include tips received by employees in December 2006, but not reported until January 2007.
Line 5. Gross receipts from food or beverage operations.
Enter the total gross receipts from the provision of food or beverages for this establishment for the year.
If you do not charge separately for providing food or beverages along with other goods or services (such as a package
deal for food and lodging),
make a good-faith estimate of the gross receipts from the food or beverages. This estimate must reflect the cost to the employer
for providing the
food or beverage plus a reasonable profit factor.
Line 6.
Enter the result of multiplying line 5 by 8% (.08) or a lower rate (if the establishment was granted a lower rate
by the IRS).
If a lower percentage rate was granted, write the rate in the space provided and attach a copy of the IRS determination
letter.
The 8% rate (or lower rate) is used for tip allocation purposes only. Using this rate does not mean that directly tipped employees
must report only
8%. They should report the amount of actual tips received.
If you have allocated tips using other than the 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 time period for which wages were paid or allocated on
a quarterly basis.
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 excess to those
employees. Enter the excess on line 7. There are three methods by which you may allocate tips. Check the box on line 7a, b,
or c to show the method
used.
Line 7a. Hours-worked method.
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 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 (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 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 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 sections 31.6053-3(j)(19) and 31.6053-3(f)(1)(iv) for details.
If you use the hours-worked method, be sure to enter in line 7a the average number of employee (both tipped and 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 of workers (both tipped and nontipped) were employed.
Line 7b. Gross receipts method.
If no good-faith agreement (as explained below) applies to the payroll period, you must allocate the difference between
total tips reported and 8%
of gross receipts using the gross receipts method (or hours-worked method (line 7a)) as follows (see the example on page 5).
-
Multiply the establishment's gross receipts (other than nonallocable receipts) for the payroll period by 8% (.08) or the lower
rate.
-
Subtract from the amount figured in step 1 the total amount of tips reported by employees who were tipped 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
employees do not 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 maitre d's, who receive tips directly from
customers and indirectly
through tip splitting or pooling, are treated as directly tipped employees.
-
For each employee who is tipped directly, multiply the result in step 2 by the following fraction: the numerator (top number)
is the amount
of the establishment's gross receipts attributable to the employee, and the denominator (bottom number) is the gross receipts
attributable to all
directly tipped employees. The result is each directly tipped employee's share of 8% (or the lower rate) of the gross receipts
for the payroll
period.
-
From each directly tipped employee's share of 8% or the lower rate of the gross receipts figured in step 3, subtract the tips
the employee
reported for the payroll period. The result is each directly tipped employee's shortfall (if any) for the period.
-
From the amount figured in step 1, subtract the total tips reported by both directly and indirectly tipped employees. The
result is the
amount that has to be allocated among the directly tipped employees who had a shortfall for the payroll period as figured
in step 4.
-
For each directly tipped employee who had a shortfall for the period as figured in step 4, multiply the amount in step 5 by
the following
fraction: the numerator is the employee's shortfall (figured in step 4), and the denominator is the total shortfall of all
directly tipped employees.
The result is the amount of allocated tips for each directly tipped employee.
Line 7c. Good-faith agreement.
An allocation can be made under a good-faith agreement. This is a written agreement between you and at least two-thirds
of the employees of each
occupational category of employees who receive tips (for example, waitstaff, bussers, and maitre d's) working in the establishment
when the agreement
is adopted. The agreement must:
-
Provide for an allocation of the difference between total tips reported and 8% of gross receipts among employees who receive
tips that
approximates the actual distribution of tip income among the employees;
-
Be effective the first day of a payroll period that begins after the date the agreement is adopted, but no later than January
1 of the next
year;
-
Be adopted when there are employees in each occupational category who would be affected by the agreement; and
-
Allow for revocation by a written agreement adopted by at least two-thirds of the employees in occupational categories affected
by the
agreement when it is revoked. The revocation is effective only at the beginning of a payroll period.
Line 8. Total number of directly tipped employees.
Enter the total number of directly tipped employees who worked at the establishment during 2006. This is the cumulative
total of all directly
tipped employees who worked at the establishment at any time during the year. If you have a large turnover of directly tipped
employees, this number
may be large. Do not use this number to determine if you must file Form 8027. Instead, see the Worksheet for Determining Whether To File Form
8027 on page 1.
Sign your name and include your title. Then enter the date signed and the best daytime telephone number where IRS can reach
you, including area
code.
Who must sign the Form 8027?
Form 8027 must be signed as follows.
•Sole proprietorship.
The individual who owns the business.
•Corporation (including an LLC treated as a corporation).
The president, vice president, or other principal officer.
•Partnership (including an LLC treated as a partnership) or unincorporated organization.
A responsible and duly authorized member or officer having knowledge of its affairs.
•Single member limited liability company (LLC) treated as a disregarded entity.
The owner of the limited liability company (LLC).
•Trust or estate.
The fiduciary.
Form 8027 may also be signed by a duly authorized agent of the taxpayer if a valid power of attorney has been filed.
Example for Line 7b. Gross receipts method.
A large food or beverage establishment has gross receipts for a payroll period of $100,000 and has tips reported for
the payroll period of $6,200.
Directly tipped employees reported $5,700, while indirectly tipped employees reported $500.
| |
Directly tipped employees |
Gross receipts for payroll period |
Tips reported |
|
| |
A
|
$18,000
|
$1,080
|
|
| |
B
|
16,000
|
880
|
|
| |
C
|
23,000
|
1,810
|
|
| |
D
|
17,000
|
800
|
|
| |
E
|
12,000
|
450
|
|
| |
F
|
14,000
|
680
|
|
| |
Totals |
$100,000
|
$5,700
|
|
| 1. |
$100,000 (gross receipts) x .08 = $8,000
|
| 2. |
$8,000 - $500 (tips reported by indirectly tipped employees) = $7,500
|
| |
|
|
|
|
| 3. |
Directly tipped employees |
Directly tipped employee's share of 8% of the gross |
(Times)
Gross receipts ratio |
Employee's share of 8% of gross |
| |
A
|
$7,500
|
18,000/100,000 =
|
$1,350
|
| |
B
|
$7,500
|
16,000/100,000 =
|
1,200
|
| |
C
|
$7,500
|
23,000/100,000 =
|
1,725
|
| |
D
|
$7,500
|
17,000/100,000 =
|
1,275
|
| |
E
|
$7,500
|
12,000/100,000 =
|
900
|
| |
F
|
$7,500
|
14,000/100,000 =
|
1,050
|
| |
|
|
Total |
$7,500
|
| |
|
|
|
|
| 4. |
Directly tipped employees |
Employee's share of 8% of the gross |
(Minus)
Tips Reported |
Employee shortfall |
| |
A
|
$1,350
|
$1,080 =
|
$270
|
| |
B
|
$1,200
|
880 =
|
320
|
| |
C
|
$1,725
|
1,810 =
|
-
|
| |
D
|
$1,275
|
800 =
|
475
|
| |
E
|
$ 900
|
450 =
|
450
|
| |
F
|
$1,050
|
680 =
|
370
|
| |
|
Total shortfall |
$1,885
|
| 5. |
$8,000 less $6,200 (total tips reported) = $1,800 (amount allocable among employees who
had a shortfall)
|
| |
|
|
|
|
| 6. |
Shortfall employees |
Allocable amount |
(Times)
Shortfall ratio |
Amount of allocation |
| |
A
|
$1,800
|
270/1,885 =
|
$258
|
| |
B
|
$1,800
|
320/1,885 =
|
306
|
| |
D
|
$1,800
|
475/1,885 =
|
454
|
| |
E
|
$1,800
|
450/1,885 =
|
430
|
| |
F
|
$1,800
|
370/1,885 =
|
353
|
|
Since employee C has no shortfall, there is no allocation to C.
|
In this example, the total amount of allocation is $1,801 resulting from the rounding off to whole numbers.
Employer's Optional Worksheet for Tipped Employees
Unreported tip income can lead to additional employer liability for FICA taxes. As a means of determining if your employees
are reporting all of
their tips to you, please take a few minutes to voluntarily complete the following worksheet. Completing this worksheet is
only for the employer's
information (it is not sent to the IRS).
|
1.
|
Enter amount from Form 8027, line 1
|
1.
|
|
|
2.
|
Enter amount from Form 8027, line 2
|
2.
|
|
|
3.
|
Divide line 1 by line 2, enter as a decimal (at least 4 decimal places)
|
3.
|
|
|
4.
|
Enter amount from Form 8027, line 4c
|
4.
|
|
|
5.
|
Enter amount from Form 8027, line 5
|
5.
|
|
|
6.
|
Divide line 4 by line 5, enter as a decimal (at least 4 decimal places)
|
6.
|
|
|
7.
|
Subtract line 6 from line 3; if zero or less, stop here
|
7.
|
|
|
8.
|
Potential unreported tips. Multiply line 7 by line 5
|
8.
|
|
Once you have completed the worksheet:
-
If the entry on line 7 is zero or less, your employees are probably accurately reporting their tips; however,
-
If the entry on line 8 is greater than zero, depending on the type of operation you have and whether or not you have allocated
tips, it is
possible that your employees are not reporting all of their tip income to you.
Another quick method to determine if your employees are properly reporting all of their tips to you is to compare the rate
of tips reported on
credit sales to the rate of tips reported on cash sales. For example, if line 3 in the worksheet above greatly exceeds the
rate determined from
dividing reported cash tips by reportable cash receipts (that is, total cash receipts less nonallocable cash receipts), some
of your employees may not
be reporting all of their tips to you and you generally should be showing an amount on line 7 (“ Allocation of tips”) of Form 8027.
If it appears that not all tips are being reported to you, the IRS offers a service called the Tip Rate Determination & Education
Program. This
program can assist you, the employer, in implementing more effective methods of tip income reporting. The program also offers
assistance in 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
www.irs.gov and type
“restaurant” in the Keyword search box. You may also call 1-800-829-4933 or visit www.irs.gov/localcontacts for the IRS
Taxpayer Assistance Center in your area; or send an email to [email protected] and request information on this program.
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