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National Restaurant Association - Tip reporting: What you need to know about Form 8027

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Tip reporting: What you need to know about Form 8027

As you tie up loose ends on your 2015 records in preparation for filing taxes, don’t forget about your tip-reporting paperwork.

Many restaurateurs are required to file an annual report with the Internal Revenue Service noting total tip income reported by employees for the previous calendar year, among other data.

Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, is due at the end of February for operators who file in paper format, and a month later for restaurateurs who file electronically.

The IRS uses the form to flag restaurants where tip income may have been underreported. Agency officials have also indicated in recent years that they’re on the lookout for businesses that are required to file the form but fail to do so.

As you assemble your records, here’s what you need to know about the Form 8027:

  • Who’s required to file: You must file a Form 8027 for 2015 if (1) you operate a business where food and beverages are served for on-site consumption and tipping is customary, and (2) you employed more than 10 employees whose combined hours exceeded 80 on a typical business day in 2015.
  • When the form must be filed: Form 8027 must be filed with the IRS on or before the last day of February for employers who file the form on paper, or March 31 for employers who file the form electronically.
  • What data is required: Form 8027 requires businesses to show gross receipts, charged tips and the amount of tips employees reported during 2015, among other data. If employees collectively failed to report tips equal to 8 percent of an establishment’s gross receipts, employers must “allocate” tips to individual employees whose reported tips fell below 8 percent of their share of food-and-drink sales. The allocation process is complex; the Form 8027 instructions include details on when and how to allocate tips.
  • Employees may need some reminders: Tax season is a good time to remind your employees about their obligation to report tips throughout the year. Federal law requires any employee who receives at least $20 in tips in a month to report tips to their employer at least once a month. This applies to any employee, whether they receive tips directly from guests or indirectly-tipped employees who share in tips received by other employees. IRS Publication 531, Reporting Tip Income, includes details for employees on keeping daily records, reporting tips to employers, and reporting tip income on federal tax returns.

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