It’s that time of year again to calculate your tip liability. 8027 forms are due annually by the last day of February on paper or March 31st electronically. You are required to file if your establishment serves food and beverages for onsite consumption and involves customary tipping. Also, employers are required to file if they have more than 10 employees who are involved in tipping practice from guests and whose combined hours exceeded 80 on a typical business day.
The 8027 Information Return requires businesses to show gross receipts, charged tips and the amount of tips employees reported during 2015. Most of this information is easily obtained from your POS systems and your payroll journals. Be careful not to include service charges or carry out sales in your gross sales calculation – these are considered nonallocable receipts and are not included.
The IRS uses transaction dates to calculate liability – not payroll dates – so be sure to do the conversion.
If you did not have a tipping policy to ensure employees were declaring the appropriate amounts of tips through payroll during the year, you may find yourself in the position to allocate tips. Allocating unclaimed tips will necessitate redoing your W-4’s for affected employees and it will change their data. Instructions for tip allocations are on the 8027 form. If your restaurant tipping declaration falls below 8% of your gross sales you will be required to allocate.
Employers that own more than one establishment must file 8027’s for each establishment.
Federal law requires any employee who receives at least $20.00 in tips in a month to report tips to their employer in order for those tips to be processed through payroll and have the appropriate payroll taxes applied to the additional income. This applies whether an employee is a directly tipped employee like a server or bartender or an indirectly tipped (comes from another employee) employee like a food runner or busser.
You can file for an extension to report; the application for extension must be filed before February 29, 2016 this year.
The IRS has a new mailing address for mailing the forms: Internal Revenue Service, Cincinnati, Ohio 45999.
Form 8027 can be downloaded from IRS.gov: https://www.irs.gov/pub/irs-prior/f8027–2015.pdf
Please give us a call if we can assist you with your filing.
About the Author
Jean Hagan, Principal
Jean has owned, operated, and consulted in the restaurant industry for more than 30 years. During that time, she worked with a well-known national chain; owned a food and beverage company that operated multiple restaurants, bars, and event spaces in the Squaw Valley area; and became the president, CEO, CFO, and shareholder of one of the highest-grossing restaurants in California. Today, Jean is Principal and leads the Restaurant Operations Consulting practice at KROST. » Full Bio