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)

2017

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.

electronically even if you're not required to file 250 or more
Forms 8027.

Future Developments

General Instructions

For the latest information about developments related to
Form 8027 and its instructions, such as legislation enacted
after they were published, go to IRS.gov/Form8027.

What's New
Certified professional employer organizations (CPEOs).
The Tax Increase Prevention Act of 2014 required the IRS to
establish a voluntary certification program for professional
employer organizations (PEOs). PEOs handle various payroll
administration and tax reporting responsibilities for their
business clients and are typically paid a fee based on payroll
costs. To become and remain certified under the certification
program, CPEOs must meet various requirements described
in sections 3511 and 7705 and related published guidance. A
CPEO is generally treated as the employer of any individual
who performs services for a customer of the CPEO and is
covered by a contract described in section 7705(e)(2)
between the CPEO and the customer (CPEO contract), but
only for wages and other compensation paid to the individual
by the CPEO.
For purposes of Form 8027, the customer for whom a
work site employee performs services (that is, the employer
who operates a large food or beverage establishment) is
considered the employer and must file Form 8027. The
CPEO must furnish to the customer any information
necessary to complete this form.
For more information about CPEOs, go to IRS.gov/CPEO.

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 2017, 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.
Go to IRS.gov/Restaurants for tax information relevant to
restaurants, including information about the credit for
employer social security and Medicare taxes paid on certain
employee tips, which is reported on Form 8846. Also see
section 6 of Pub. 15 for more information about tips.
Electronic filing. If you're required to file 250 or more
Forms 8027, you must file electronically. Information returns
are filed electronically through the Filing Information Returns
Electronically (FIRE) system. Go to IRS.gov/FIRE for more
information. See Pub. 1239 for more information about filing
Form 8027 electronically. We encourage you to file
Sep 12, 2017

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 it, and how to fill it out line by line.
All employees receiving $20 or more a month in tips

TIP must report 100% of their tips to their employer.

Who Must File

You must file Form 8027 if you're an employer who operates
a large food or 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
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 and a separate
Form 8027 is filed for each location. 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. For example, a gourmet restaurant, a coffee
shop, and a cocktail lounge in a hotel would each be treated
as a separate food or beverage operation if gross receipts
from each activity are recorded separately. In addition, an
employer may treat different activities conducted in the
identical place at different times as separate food or
beverage operations if the gross receipts of the activities at

Cat. No. 61013P

If you're required to report for more than one

each time are recorded separately. For example, a restaurant
may record the gross receipts from its cafeteria-style lunch
operation separately from the gross receipts of its full-service
food or beverage operations.

TIP establishment and you file Forms 8027 on paper, 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. Form 8027-T isn't filed with electronically filed
Forms 8027.

Generally, tipping isn't 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 isn't considered customary, the food or
beverage operation isn't a large food or beverage
establishment.

New business. You're a new business if you opened a food
or beverage operation during the year and you didn't 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.

Worksheet for Determining if You Must File
Form 8027 for Calendar Year 2017

You can complete the optional worksheet to determine if you
had more than 10 employees on a typical business day
during 2016 and, therefore, must file Form 8027 for 2017. 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 (don't send it
to the IRS).

When To File

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.
Don't include employees at fast food operations.
Don't apply the 10-employee test separately to each food
or beverage operation.
Don't 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.

File Form 8027 (and Form 8027-T when filing more than one
paper Form 8027) by February 28, 2018. However, if you file
electronically, the due date for Form 8027 is April 2, 2018.
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. File Form 8809 as soon as you know an
extension of time to file is necessary, but not before January
1 of the filing year, and not later than February 28, 2018 (April
2, 2018, if you file Forms 8027 electronically).

Where To File
Mail Form 8027 to:

Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45999

1. Enter one-half of the total employee hours worked
during the month in 2016 with the greatest
aggregate gross receipts from food and
beverages. . . . . . . . . . . . . . . . . . . . . . . . .

Form 8027 attachments if filing on paper. If applicable,
attach a copy of your timely filed Form 8809, and a copy of
your “lower rate” determination letter from the IRS. If you filed
Form 8508, Request for Waiver From Filing Information
Returns Electronically, attach a copy of the approved waiver
that you received. Don't attach any other documents.

2. Enter the number of days opened for business
during the month shown in line 1. . . . . . . . . . .
3. Enter one-half of the total employee hours worked
during the month in 2016 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. . . . . . . . . . .

Reporting and filing electronically. If you're required to
file 250 or more Forms 8027, you must file the returns
electronically. See Pub. 1239 for information on filing Form
8027 electronically. We encourage you to file electronically
even if you're not required to file 250 or more Forms 8027.

5. Divide line 1 by line 2. . . . . . . . . . . . . . . . . .
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 2017. . . . . . . . . .

Penalties

The law provides for a penalty if you don't file Form 8027
(and Form 8027-T) on time unless you can show reasonable
cause for the delay. In addition, if you don't complete an
accurate Form 8027, you won't be able to correctly prepare
Form W-2, Wage and Tax Statement, for each directly tipped
employee for whom a tip allocation was required to be made.
You may be charged penalties for each failure to:
Timely file a correct information return (Forms 8027 and
W-2) including failure to file electronically if required, and
Timely furnish a correct Form W-2 to the employee.

If your answer on line 7 of the worksheet is more than 80
hours, then you meet the 10-employee test.
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, doesn't
have more than 10 employees on a typical business day.

!

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Instructions for Form 8027 (2017)

for the payroll period. No allocation is made to indirectly
tipped employees.

For more information on penalties for untimely or incorrect
Forms W-2 or 8027, see the penalties sections in the General
Instructions for Forms W-2 and W-3, and the General
Instructions for Certain Information Returns.

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.

Gross Receipts

Gross receipts include all receipts from the provision of food
or beverages (other than nonallocable receipts, as defined
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.

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

Generally, tips aren't included in gross receipts. However,
if you reduced your cash sales by the amount of any cash
you paid to tipped employees for any charged tips due to
them, then include those charged tips in your gross receipts.
Don't include state or local taxes in gross receipts.

!

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 employer identification
number (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.
An employer 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.

If you don't 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.
Remind all directly and indirectly tipped employees

TIP 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. Carryout sales are sales of food or beverages for
consumption off the premises of the establishment. Room
service isn't a carryout sale. Nonallocable receipts generally
include all sales on which tipping isn't customary.
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, whose receipts
wouldn't be included in the amount on line 5 of Form 8027,
and whose receipts aren't nonallocable receipts which have
a service charge of 10% or more added.
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 aren't included
in the amount on line 5.
However, you wouldn't 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 wouldn't have to
include the value of a fruit basket placed in a hotel room in
gross receipts since, generally, tipping for it isn't customary.

“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.”
For an employer petition, you must attach to the petition
copies of Form 8027 (if any) filed for the 3 years before your
petition. If you're 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 “United States 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. 2017-1,
2017-1 I.R.B. 1, available at IRS.gov/irb/2017-01_IRB/
ar07.html). This revenue procedure is updated annually as

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. The allocation
is made to each directly tipped employee performing
services for the establishment who has a reporting shortfall

Instructions for Form 8027 (2017)

Don't mail Form 8027 to this address. See Where To
File, earlier.

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If you didn't 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. Don't write “Corrected” on Copy A of the Form W-2
that you file with the SSA.

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.

!

CAUTION

Don't 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
federal income tax, social security tax, and Medicare tax and
include the amount on Form W-2 as wages. Service charges
aren't reported as tips on Form 8027. You may be required to
report service charges on line 3; see the instructions for
line 3, later. 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 (including zero),
The payment isn't 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 indicates that the payment
may be a service charge.

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.

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 aren't
subject to withholding and must not 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're 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 didn't 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 isn't required on the early Form W-2. See If you
furnished Form W-2 before the end of the year, later.

For additional information, including examples of both
service charges and tips, see Q&A 1 in Rev. Rul. 2012-18,
2012-26 I.R.B. 1032, available at IRS.gov/irb/2012-26_IRB/
ar07.html.

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

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 the SSA. Use the current
version of Form W-2c to report the corrected allocation and
correct the previously filed Form W-2.
If you furnished Form W-2 to an employee but didn't
file it with the 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 them to the employee. Don't write “Corrected” on
Copy A of the Form W-2 that you file with the SSA.

Name and Address of Establishment
and Employer Identification Number

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.
The EIN should be the same as the number on the Forms
W-2 that you furnish to the employees and the Form 941 that
you file to report wages and taxes for employees working for
the establishment.

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).
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).

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.
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Instructions for Form 8027 (2017)

Line 4a. Total Tips Reported by Indirectly
Tipped Employees

An establishment that serves food, if at all, only as an
incidental part of the business of serving alcoholic
beverages.

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.

Employer's Name and Address

Enter the name and address of the entity or individual whose
EIN was provided earlier. If mail isn't delivered to your street
address, enter your P.O. box number. Enter foreign
addresses as follows: city, province or state, and country.
Don't abbreviate the name of the country.

Line 4b. Total Tips Reported by Directly Tipped
Employees

Establishment Number

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. Treat
employees, such as maitre d's, who receive tips directly from
customers and indirectly through tip splitting or pooling, as
directly tipped employees.

Enter a five-digit number to identify the individual
establishments that you're 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, don't
use the number you assigned to it for another establishment.

Line 4c. Total Tips Reported

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

Lines 1 Through 8

Line 4a
+ Line 4b
Line 4c

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 the instructions for line 1 below.

In figuring the tips you should report for 2017, don't
include tips received by employees in December
CAUTION 2016, but not reported until January 2017. However,
include tips received by employees in December 2017, but
not reported until January 2018.

!

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.

Line 5. Gross Receipts From Food and
Beverages

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.

Enter the total gross receipts from the provision of food and
beverages for this establishment for the year. See Gross
Receipts, earlier, for an explanation of what's included in
gross receipts.

Line 1. Total Charged Tips for Calendar Year
2017

Line 6

Line 2. Total Charge Receipts Showing Charged
Tips

If a lower 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.

Enter the result of multiplying line 5 by 8% (0.08) or a lower
rate (if the establishment was granted a lower rate by the
IRS).

Enter the total amount of tips that are shown on charge
receipts for the year. Don't include service charges. See
Difference Between Service Charges and Tips, earlier.

Enter the total sales from the provision of food and
beverages (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. Don't
include any tips or any state or local taxes in the amounts
reported.

The 8% rate (or lower rate) is used for tip allocation
purposes only. Using this rate doesn't 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.

!

You may allocate tips for the calendar year, annually, by
payroll period, or by using any period that results in a
reasonable division of a calendar year, including biweekly,
semimonthly, quarterly, etc. The method you choose will be
effective for the entire calendar year.

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.

Instructions for Form 8027 (2017)

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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
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.

If you have allocated tips using other than the

TIP calendar year, put an “X” on line 6 and enter the
line 7.

amount of allocated tips (if any) from your records on

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. This
excess amount is reported on each employee's Form W-2 as
described earlier in Reporting Allocated Tips to Employees.
There are three methods by which you may allocate tips.
Check the box on line 7a, 7b, or 7c 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.

Line 7c. Good-Faith Agreement

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.

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.

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 7b. Gross Receipts Method

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 (or the calendar
year, or other reasonable division of the calendar year, as
explained earlier) by 8% (0.08) 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 don't 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

Keep a copy of the good-faith agreement for your records.

Line 8. Total Number of Directly Tipped
Employees

Enter the total number of directly tipped employees who
worked at the establishment during 2017. 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. Don't 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 2017, earlier.

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.

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Instructions for Form 8027 (2017)

Who Must Sign

Directly
tipped
employees

The following persons are authorized to sign the return for
each type of business entity.

A
B
C
D
E
F

• 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.
• 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.

1.
2.
3.

• Single-member 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 IRS.gov/irb/2005-28_IRB/
ar16.html.

4.

Example for Line 7b. Gross Receipts Method

A large food or beverage establishment has chosen to make
tip allocations using its actual payroll period. It 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.

5.
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 0.08 = $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
$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

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

In this example, the total amount of the allocation is

TIP $1,801 resulting from the rounding off to whole
numbers.

For additional examples for the Hours-Worked Method
and Gross Receipts Method, see Regulations section
31.6053-3(f).

Employer's Optional Worksheet
for Tipped Employees

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 (don't send it to the IRS).

Instructions for Form 8027 (2017)

-7-

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're required to give us
the information. We need it to ensure that you're complying
with these laws and to allow us to figure and collect the right
amount of tax.

3. Divide line 1 by line 2, enter as a decimal (at least
3.
4 decimal places) . . . . . . . . . . . . . . . . . . .
4. Enter amount from Form 8027, line 4c . . . . . .
4.
5. Enter amount from Form 8027, line 5

. . . . . .

5.

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.

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 . . . . . . . . . . . . . . . . . . . . . . . . . .

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 aren't
reporting all of their tip income to you.

You're 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.
Generally, tax returns and return information are
confidential, as required by section 6103. However, section
6103 allows or requires the IRS 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
TIP 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.

Need Help?

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

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 IRS.gov and type
“restaurant” in the search box. You may also send an email to
[email protected] and request information on this
program.
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).
You can also reach the center by email at [email protected].
Don't include tax identification numbers (TINs) or
attachments in email correspondence because it isn't secure.

Forms
Recordkeeping .

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

Learning about the law or the form

7 hr., 53 min.

. . .

53 min.

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

1 hr., 3 min.

8027-T
43 min.

If you have comments concerning the accuracy of these
time estimates or suggestions for making these forms
simpler, we would be happy to hear from you. You can send
us comments from IRS.gov/FormComments. Or you can
send your comments to Internal Revenue Service, Tax Forms
and Publications Division, 1111 Constitution Ave. NW,
IR-6526, Washington, DC 20224. Don't send the tax forms to
this address. Instead, see Where To File, earlier.

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Instructions for Form 8027 (2017)