Employers Annual Information Return of Tip Income and Allocated Tips (Form 8027); Transmittal of Employer's Annual Information Return of Tip Income and Allocated Tips (Form 8027-T)

2014

Instructions for Form 8027

Department of the Treasury
Internal Revenue Service

Employer's Annual Information Return of
Tip Income and Allocated Tips
Section references are to the Internal Revenue Code unless
otherwise noted.

Future Developments

For the latest information about developments related to
Form 8027 and its instructions, such as legislation enacted
after they were published, go to www.irs.gov/form8027.

Reminders

You must check one of the “Yes” or “No” boxes under
employer's name and address to indicate whether or not the
establishment accepts credit cards, debit cards, or other
charges. If the “Yes” box is checked, lines 1 and 2 of Form
8027 must be completed. Also see the instructions for lines 1
and 2.
You can complete the optional Worksheet for Determining
if You Must File Form 8027 for Calendar Year 2014, later, to
determine if you must file Form 8027.
You may want to use the Employer's Optional Worksheet
for Tipped Employees, later, as a means of determining if
your employees are reporting all of their tip income to you.
Electronic filing. If you are required to file 250 or more
Forms 8027, you must file electronically. See Pub. 1239,
Specifications for Electronic Filing of Form 8027, Employer's
Annual Information Return of Tip Income and Allocated Tips,
for more information.

General Instructions
Purpose of Form

Employers must annually report to the IRS receipts and tips
from their large food or beverage establishments. Employers
use Form 8027 to report that information. In addition,
employers use Form 8027 to determine allocated tips for
tipped employees.
These instructions give you some background information
about Form 8027. They tell you who must file Form 8027,
when and where to file, and how to fill Form 8027 out line by
line.

TIP

All employees receiving $20 or more a month in tips
must report 100% of their tips to their employer.

Who Must File

You must file Form 8027 if you are an employer who
operates a large food of beverage establishment.

A large food or beverage establishment is a food or
beverage operation:
That is located in the 50 states or in the District of
Columbia,
Where tipping of food or beverage employees by
customers is customary, and

Sep 03, 2014

Whose employer normally employed more than 10
employees on a typical business day during the preceding
calendar year. We call this the 10-employee test.
A food or beverage operation is any business activity
which provides food or beverages for consumption on the
premises, other than fast food operations. An operation is a
fast food operation only if its customers order, pick up, and
pay for food or beverages at a counter or window and then
carry the food or beverages to another location (either on or
off the premises). Some people call food or beverage
operations venues, stores, rooms, outlets, or cost centers.
If you provide food or beverages at more than one
location, the activity at each separate location is considered
to be a separate food or beverage operation. You could also
have more than one food or beverage operation within a
single building. Each activity conducted within a single
building is treated as a separate location if the customers of
the activity, while being provided with food or beverages,
occupy an area separate from that occupied by customers of
other activities and the gross receipts from the activity are
recorded separately.
Generally, tipping is not considered customary in a
cafeteria-style operation or if at least 95% of total sales (other
than carryout) had a service charge of 10% or more. See
Regulations section 31.6053-3(j)(7) and (18) for more
information. If tipping is not considered customary, the food
or beverage operation is not a large food or beverage
establishment.

Worksheet for Determining if You Must File
Form 8027 for Calendar Year 2014

You can complete the optional worksheet to determine if you
had more than 10 employees on a typical business day
during 2013 and, therefore, must file Form 8027 for 2014. It is
the average number of employee hours worked on a
typical business day that determines whether or not you
employed more than 10 employees. Completing this
worksheet is only for the employer's information (do not send
it to the IRS).
You must consider the following when completing the
worksheet.
Include employees at all of your food or beverage
operations, even if an individual operation has fewer than 10
employees.
Include all employees at your food or beverage operations,
not just food or beverage employees.
Do not include employees at fast food operations.
Do not apply the 10-employee test separately to each food
or beverage operation.
Do not consider anyone who owns 50% or more in value of
the stock of a corporation as an employee for the
10-employee test. See Regulations section 31.6053-3(j)(9)
for more information.

Cat. No. 61013P

Note. When filing a paper Form 8027, attach a copy of your
timely filed Form 8809, a copy of your approved waiver (Form
8508, Request for Waiver From Filing Information Returns
Electronically) from filing Form 8027 electronically, and a
copy of your “lower rate” determination letter from the IRS.
Do not attach any other documents.

1. Enter one-half of the total employee hours worked
during the month in 2013 with the greatest
aggregate gross receipts from food and
beverages . . . . . . . . . . . . . . . . . . . . . . . .
2. Enter the number of days opened for business
during the month shown in line 1 . . . . . . . . . .

Reporting and filing electronically. If you are the
employer and you are required to file 250 or more Forms
8027, you must file the returns electronically. See Pub. 1239
for information on filing Form 8027 electronically.

3. Enter one-half of the total employee hours worked
during the month in 2013 with the least aggregate
gross receipts from food and beverages . . . . .
4. Enter the number of days opened for business
during the month shown in line 3. . . . . . . . . . .

Penalties

5. Divide line 1 by line 2. . . . . . . . . . . . . . . . . .

The law provides for a penalty if you do not file Form 8027
(and Form 8027-T) on time unless you can show reasonable
cause for the delay. You may be charged penalties for each
failure to:
Timely file a correct information return including failure to
file electronically if required, and
Timely provide a correct Form W-2, Wage and Tax
Statement, to the employee.

6. Divide line 3 by line 4. . . . . . . . . . . . . . . . . .
7. Add lines 5 and 6. If line 7 is greater than 80 (hours),
you must file Form 8027 for 2014. . . . . . . . . .

If your answer on line 7 of the worksheet is more than 80
hours, then you meet the 10-employee test.

For more information on penalties for untimely or incorrect
Forms W-2 or 8027, see Pub. 1239 and the General
Instructions for Forms W-2 and W-3.

If you meet the 10-employee test, file a separate
Form 8027 for each food or beverage operation
CAUTION
where tipping is customary. This is true even if an
individual operation, when considered separately, does not
have more than 10 employees on a typical business day.

!

Gross Receipts

Gross receipts include all receipts (other than nonallocable
receipts, see definition below) from cash sales, charge
receipts, charges to a hotel room (excluding tips charged to
the hotel room if your accounting procedures allow these tips
to be separated), and the retail value of complimentary food
or beverages served to customers as explained below.

If you are required to report for more than one establishment,
you must complete and file Form 8027-T, Transmittal of
Employer's Annual Information Return of Tip Income and
Allocated Tips, with Forms 8027. Attach Forms 8027 in
establishment number order (lowest to highest). For more
information on establishment numbers, see Establishment
Number, later.

Also include charged tips in gross receipts, but only to the
extent that you reduced your cash sales by the amount of
any cash you paid to tipped employees for any charged tips
due them. However, if you did not reduce cash sales for
charged tips paid out to employees, do not include those
charged tips in gross receipts. Do not include state or local
taxes in gross receipts.

New business. You are a new business if you opened a
food or beverage operation during the year and you did not
operate any food or beverage operations during the
preceding calendar year. File Form 8027 for a new food or
beverage operation if, during any 2 consecutive calendar
months, the average number of hours worked each business
day by all employees is more than 80 hours. To figure the
average number of employee hours worked each business
day during a month, divide the total hours all employees
worked during the month by the number of days the
operation was open for business. After the test is met for 2
consecutive months, you must file a return covering the rest
of the year, beginning with the next payroll period.

TIP

Remind all directly and indirectly tipped employees
to include all charged tips and all cash tips received
in the tip amount that they must report to you.

Nonallocable receipts. These are receipts for carryout
sales and receipts with a service charge added of 10% or
more. Nonallocable receipts generally include all sales on
which tipping is not customary.

When To File

Complimentary items. Food or beverages served to
customers without charge must be included in gross receipts
if (a) tipping for providing them is customary at the
establishment, and (b) they are provided in connection with
an activity that is engaged in for profit and whose receipts
would not be included in the amount on line 5 of Form 8027.
For example, you would have to include in gross receipts
the retail value of the complimentary drinks served to
customers in a gambling casino because tipping is
customary, the gambling casino is an activity engaged in for
profit, and the gambling receipts of the casino are not
included in the amount on line 5.
However, you would not have to include the retail value of
complimentary hors d'oeuvres at your bar or a complimentary
dessert served to a regular patron of your restaurant in gross
receipts because the receipts of the bar or restaurant would
be included in the amount on line 5. You would not have to

File Form 8027 (and Form 8027-T when filing more than one
Form 8027) by March 2, 2015. However, if you file
electronically, the due date is March 31, 2015.
Extension of time to file. Filers of Form 8027 submitted on
paper or electronically may request an extension of time to
file on Form 8809, Application for Extension of Time To File
Information Returns. File Form 8809 as soon as you know an
extension of time to file is necessary, but not later than March
2, 2015 (March 31, 2015 if you file electronically).

Where To File
Mail Form 8027 to:

Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45999
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Treasury” for the amount of the user fee required for
determination letters.
For the current user fee amount, consult the first revenue
procedure of the year (for example, Rev. Proc. 2014-1,
2014-1 I.R.B. 1, available at www.irs.gov/irb/2014-1_IRB/
ar05.html). This revenue procedure is updated annually as
the first revenue procedure of the year, but it may be
modified or amplified during the year. The user fees are
posted in Appendix A of the revenue procedure. Since the
taxpayer is requesting a determination letter, the payment for
the user fee must be submitted along with the petition for the
rate reduction.
A majority of all the directly tipped employees must
consent to any petition written by an employee. A “majority of
employees” means more than half of all directly tipped
employees employed by the establishment at the time the
petition is filed. Employee groups must follow the procedures
in Regulations section 31.6053-3(h); Pub. 531, Reporting Tip
Income; and Rev. Proc. 86-21.
The IRS will notify you when and for how long the reduced
rate is effective.

include the value of a fruit basket placed in a hotel room in
gross receipts since, generally, tipping for it is not customary.

Allocation of Tips

You must allocate tips among employees who receive them if
the total tips reported to you during any payroll period are
less than 8% (or the approved lower rate) of this
establishment's gross receipts for that period.
Generally, the amount allocated is the difference between
the total tips reported by employees and 8% (or the lower
rate) of the gross receipts, other than nonallocable receipts.

Lower rate. You (or a majority of the employees) may
request a lower rate (but not lower than 2%) by submitting a
petition to:
Internal Revenue Service
National Tip Reporting Compliance
3251 North Evergreen Dr. NE
Grand Rapids, MI 49525

!

Do not mail Form 8027 to this address. See Where
To File, earlier.

Note. You must attach a copy of your “lower rate”
determination letter from the IRS when filing a paper Form
8027. See Pub. 1239 for instructions on submitting a copy of
your “lower rate” determination letter from the IRS when filing
electronically.

CAUTION

The burden of supplying sufficient information to allow the
IRS to estimate with reasonable accuracy the actual tip rate
of the establishment rests with the petitioner. Your petition for
a lower rate must clearly demonstrate that a rate less than
8% should apply. It must include the following information.
Employer's name, address, and EIN.
Establishment's name, address, and establishment
number.
Detailed description of the establishment that would help
to determine the tip rate. The description should include the
type of restaurant, days and hours of operation, type of
service including any self-service, the person (waiter or
waitress, cashier, etc.) to whom the customer pays the
check, whether the check is paid before or after the meal,
and whether alcohol is available.
Past year's information shown on lines 1 through 6 of Form
8027 as well as total carryout sales; total charge sales;
percentage of sales for breakfast, lunch, and dinner; average
dollar amount of a guest check; service charge, if any, added
to the check; and the percentage of sales with a service
charge.
Type of clientele.
Copy of a representative menu for each meal.
The petition must contain the following statement and be
signed by a responsible person who is authorized to make
and sign a return, statement, or other document.

Reporting Allocated Tips To
Employees

Give each employee who has been allocated tips a Form
W-2 that shows the allocated amount in box 8. Tip allocations
have no effect on withholding income tax, social security tax,
or Medicare tax from employees’ wages. Allocated tips are
not subject to withholding and are not to be included in boxes
1, 3, 5, and 7 of Form W-2.
If you allocate tips among employees by the methods
described later under the instructions for line 7, you are not
liable to any employee if any amount is improperly allocated.
However, if the allocation shown on the employee’s Form
W-2 differs from the correct allocation by more than 5%, you
must correct that employee’s allocation. You must also
review the allocable amount of all other employees in the
same establishment to ensure that the error did not distort
any other employee’s share by more than 5%.
You must furnish Form W-2 to employees by January 31
of the following year. If employment ends before the end of
the year and the employee asks for the Form W-2, a tip
allocation is not required on the early Form W-2. See If you
furnished Form W-2 before the end of the year, later.

“Under penalties of perjury, I declare that I have
examined this petition, including accompanying
documents, and to the best of my knowledge and
belief, the facts presented in support of this petition are
true, correct, and complete.”

Correcting allocated tips reported on Form W-2 furnished to an employee in January. If you furnished Form W-2
to an employee in January and later discover an error that
requires a correction (as discussed earlier), the method for
making a correction depends on whether Form W-2 has
been filed with the Social Security Administration (SSA).
If you filed Form W-2 with SSA. Use the current version
of Form W-2c, Corrected Wage and Tax Statement, to report
the corrected allocation on a previously filed Form W-2.
If you furnished Form W-2 to an employee but did not
file it with SSA. Prepare a new Form W-2 with the correct
information and file Copy A with the SSA. Write “Corrected”
on the employee’s new copies (B, C, and 2), and furnish

You must attach to the petition copies of Form 8027 (if
any) filed for the 3 years before your petition. If you are
petitioning for more than one establishment or you want to
know your appeal rights, see Rev. Proc. 86-21, 1986 1 C.B.
560 for additional information. Also include with your petition
a check or money order made payable to the “United States
-3-

them to the employee. Do not write “Corrected” on Copy A of
Form W-2 that you file with the SSA.

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.

If you furnished Form W-2 before the end of the year.
You may include on the early Form W-2 the employee’s
actual tip allocation or a good-faith estimate of the allocation.
Signify a good-faith estimate by writing “Estimate” next to the
allocated amount in box 8 of the Form W-2.
If you did not include an allocation on the early Form W-2
or if the estimated allocation on the early form differs from the
actual amount by more than 5%, prepare a new Form W-2
with the correct information, and file Copy A with the SSA.
Write “Corrected” on the employee’s new copies (B, C, and
2) and furnish them to the employee during January of the
next year. Do not write “Corrected” on Copy A of Form W-2
that you file with the SSA.

!

CAUTION

Employer's Name and Address

Enter the name and address of the entity or individual whose
EIN was provided earlier. 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. Once you assign a number to an
establishment, always use the same number for that
establishment each year. If you close an establishment, do
not use the number you assigned to it for another
establishment.

Do not send Forms W-2 to the IRS. We use the
information shown on the Forms W-2 that you file
with the SSA.

Difference Between Service Charges
and Tips

Service charges are treated differently from tips for federal
tax purposes. Any portion of a service charge that is
distributed to an employee is wages, and you must withhold
taxes and include the amount on Form W-2 as wages. To
accurately report and pay your taxes, you must correctly
identify amounts as either a tip or a service charge.
Generally, an amount is a tip if:
The payment is made free from compulsion,
The customer has the unrestricted right to determine the
amount,
The payment is not the subject of negotiation or dictated
by employer policy, and
The customer has the right to determine who receives the
payment.
The absence of any of these factors creates a doubt as to
whether a payment is a tip and may indicate the payment is a
service charge.

Lines 1 Through 8
Credit Card Sales

If the receipts from charges under any credit arrangement
(for example, credit or debit cards and other electronic
settlement methods) reflect tips, then you must enter on
lines 1 and 2 the appropriate amounts shown on the charge
receipts. See instructions for line 1 below.

Rounding Off to Whole Dollars

You may round off cents to whole dollars on your Form 8027.
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.

Specific Instructions
File a separate Form 8027 for each large food or beverage
establishment. Use Form 8027-T when filing more than one
Form 8027.

Line 1. Total Charged Tips for Calendar Year
2014

Name and Address of Establishment
and Employer Identification Number

Enter the total amount of tips that are shown on charge
receipts for the year.

Line 2. Total Charge Receipts Showing Charged
Tips

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 furnish 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.

Enter the total sales (other than nonallocable receipts as
defined earlier) 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

Type of Establishment

Check the box (check only one box) on the form that best
describes the type of food or beverage establishment.
An establishment that serves evening meals only (with or
without alcoholic beverages).

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.

-4-

Line 4a. Total Tips Reported by Indirectly
Tipped Employees

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, 7b, or 7c to show the method used.

Enter the total amount of tips reported for the year by
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 7a. Hours-Worked Method

Line 4b. Total Tips Reported by Directly Tipped
Employees

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.

Enter the total amount of tips reported for the year by directly
tipped employees, such as bartenders and waitstaff. Directly
tipped employees receive tips directly from customers.

Line 4c. Total Tips Reported

Add the amounts on lines 4a and 4b and enter the result on
line 4c. This amount cannot be a negative amount.

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 section 31.6053-3(f)(1)(iv)
for details.

Line 4a
+ Line 4b
Line 4c

In figuring the tips you should report for 2014, do not
include tips received by employees in December
CAUTION
2013, but not reported until January 2014. However,
include tips received by employees in December 2014, but
not reported until January 2015.

!

If you use the hours-worked method, be sure to enter on
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 5. Gross Receipts from Food and
Beverages

Line 7b. Gross Receipts Method

Enter the total gross receipts from the provision of food and
beverages for this establishment for the year.

If no good-faith agreement (as explained later) 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 Example for Line 7b. Gross Receipts Method,
later).
1. Multiply the establishment's gross receipts (other than
nonallocable receipts) for the payroll period by 8% (.08) or
the approved lower rate.
2. 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.
3. 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.
4. From each directly tipped employee's share of 8% or
the lower rate of the gross receipts figured in step 3, subtract

If you do not charge separately for providing food and
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 and beverages.
This estimate must reflect the cost to the employer for
providing the food and beverages 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. If you file Form 8027 electronically, see
Pub. 1239 for instructions on submitting 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
CAUTION
directly tipped employees must report only 8%. All
directly tipped employees and indirectly tipped employees
must report the actual amount of tips they receive.

!

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.

TIP

-5-

the tips the employee reported for the payroll period. The
result is each directly tipped employee's shortfall (if any) for
the period.
5. 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.
6. 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.

• Partnership (including an LLC treated as a partnership) or unincorporated organization. A responsible and
duly authorized member, partner, or officer having
knowledge of its affairs.
• Single member limited liability company (LLC) treated
as a disregarded entity for federal income tax purposes. The owner of the LLC or principal officer duly
authorized to sign.
• 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.
Alternative signature method. Corporate officers or duly
authorized agents may sign Form 8027 by rubber stamp,
mechanical device, or computer software program. For
details and required documentation, see Rev. Proc. 2005-39,
2005-28 I.R.B. 82, available at www.irs.gov/irb/2005-28_IRB/
ar16.html.

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:
1. Provide for an allocation of the difference between
total tips reported and 8% (or the lower rate) of gross receipts
among employees who receive tips that approximates the
actual distribution of tip income among the employees;
2. 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;
3. Be adopted when there are employees in each
occupational category who would be affected by the
agreement; and
4. 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.

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
A
B
C
D
E
F
1.
2.
3.

Line 8. Total Number of Directly Tipped
Employees

Enter the total number of directly tipped employees who
worked at the establishment during 2014. 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 if
You Must File Form 8027 for Calendar Year 2014, earlier.

4.

Signature

Sign your name and include your title. Then enter the date
signed and the best daytime telephone number where the
IRS can reach you, including area code.

Who Must Sign

The following persons are authorized to sign the return for
each type of business entity.
• Sole proprietorship. The individual who owns the
business.
• Corporation (including a limited liability company
(LLC) treated as a corporation). The president, vice
president, or other principal officer duly authorized to sign.
-6-

Gross receipts
for payroll
period
$18,000
16,000
23,000
17,000
12,000
14,000

Tips reported
$1,080
880
1,810
800
450
680

Totals
$100,000
$5,700
$100,000 (gross receipts) x .08 = $8,000
$8,000 - $500 (tips reported by indirectly tipped employees) =
$7,500
Directly
tipped
employees

Directly tipped
employees'
share of 8% of
the gross

A
B
C
D
E
F

$7,500
$7,500
$7,500
$7,500
$7,500
$7,500

Directly
tipped
employees

Employee's
share of 8% of
the gross

A
B
C
D
E
F

$1,350
$1,200
$1,725
$1,275
$ 900
$1,050

(Times)
Gross receipts
ratio

Employee's
share of 8%
of gross

18,000/100,000 =
16,000/100,000 =
23,000/100,000 =
17,000/100,000 =
12,000/100,000 =
14,000/100,000 =

$1,350
1,200
1,725
1,275
900
1,050

Total

$7,500

(Minus)
Tips reported

Employee
shortfall

$1,080 =
880 =
1,810 =
800 =
450 =
680 =

$270
320
–
475
450
370

Total shortfall

$1,885

5.
6.

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 IRS.gov and type
“restaurant” in the search box. You may also send an email to
[email protected] and request information on this
program.

$8,000 less $6,200 (total tips reported) = $1,800 (amount allocable
among employees who had a shortfall)
Shortfall
employees

Allocable
amount

A
B
D
E
F

$1,800
$1,800
$1,800
$1,800
$1,800

(Times)
Shortfall ratio

Amount of
allocation

$270/1,885 =
320/1,885 =
475/1,885 =
450/1,885 =
370/1,885 =

$258
306
454
430
353

An information reporting customer service section is
available to answer questions about reporting on Forms
8027, W-2, W-3, 1099, and other information returns. If you
have questions about reporting on information returns, call:
1-866-455-7438 (toll free),
(304) 263-8700 (toll call), or
(304) 579-4827 (TDD/TTY for persons who are deaf, hard
of hearing, or have a speech disability).

Since employee C has no shortfall, there is no allocation to C.

TIP

In this example, the total amount of allocation is
$1,800 resulting from the rounding off to whole
numbers.

Employer's Optional Worksheet
for Tipped Employees

You can also reach the center by email at [email protected].
Do not include tax identification numbers (TINs) or
attachments in email correspondence because it is not
secure.

Unreported tip income can lead to additional employer
liability for social security tax and Medicare tax. 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.

Privacy Act and Paperwork Reduction Act Notice. We
ask for the information on this form to carry out the Internal
Revenue laws of the United States. You are required to give
us the information. We need it to ensure that you are
complying with these laws and to allow us to figure and
collect the right amount of tax.
Chapter 61, Information and Returns, of Subtitle F,
Procedure and Administration, requires certain employers to
report gross receipts, tips reported to them, and any
allocated tips; and to furnish the amount of any allocated tips
to affected employees. Section 6053 and its related
regulations provide the definitions and methodology to be
used in completing these forms. If you fail to provide this
information in a timely manner, you may be liable for
penalties as provided by section 6721.

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
7.
here . . . . . . . . . . . . . . . . . . . . . . . . . . .
8. Potential unreported tips. Multiply line 7 by
8.
line 5 . . . . . . . . . . . . . . . . . . . . . . . . . .

You are not required to provide the information requested
on a form that is subject to the Paperwork Reduction Act
unless the form displays a valid OMB control number. Books
or records relating to a form or its instructions must be
retained as long as their contents may become material in
the administration of any Internal Revenue law.

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.

Generally, tax returns and return information are
confidential, as required by section 6103. However, section
6103 allows or requires the Internal Revenue Service to
disclose or give the information shown on your tax return to
others as described in the Code. For example, we may
disclose your tax information to the Department of Justice for
civil and criminal litigation, and to cities, states, the District of
Columbia, and U.S commonwealths and possessions to
administer their tax laws. We may also disclose this
information to other countries under a tax treaty, to federal
and state agencies to enforce federal nontax criminal laws, or
to federal law enforcement and intelligence agencies to
combat terrorism.

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 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.

TIP

The time needed to complete and file these forms will vary
depending on individual circumstances. The estimated
average times are:

Need Help?

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
-7-

Forms
Recordkeeping .

8027
. . . . . . . . . . . . . . .

Learning about the law or the form

9 hr., 33 min.

. . .

53 min.

Preparing and sending the form to the
IRS . . . . . . . . . . . . . . . . . . . . . . .

1 hr., 5 min.

simpler, we would be happy to hear from you. You can send
us comments from www.irs.gov/formspubs. Click on More
Information and then click on Give us feedback. Or you can
send your comments to Internal Revenue Service, Tax Forms
and Publications Division, 1111 Constitution Ave. NW,
IR-6526, Washington, DC 20224. Do not send the tax forms
to this address. Instead, see Where To File, earlier.

8027-T
43 min.

If you have comments concerning the accuracy of these
time estimates or suggestions for making these forms

-8-