Employers can use the reported tips from Forms 4070 to figure out how much to report on Form 8027. The IRS uses the form to verify the tips received for the year and to make sure employers are withholding the correct amount of taxes based on reported tips. If the total tips your team reports are less than 8% of your business’s gross sales for the month, then you need to allocate tips to employees who reported tips of less than 8% of their sales.
Who Uses Form 8027?
The IRS has established qualifying criteria to determine which businesses need to file Form 8027:
The business is located in the United States.The business has workers who usually get tips.The business employs more than 10 workers.
“More than 10 workers” is based on the average number of hours worked in a typical business day. These employees generally include bartenders, waitstaff, and bussers, but not coat-check staff or door staff. You must file a Form 8027 for each of your qualifying businesses if you have more than one, even if they’re housed within the same building. For example, if a hotel has a bar or lounge, a restaurant, and a coffee shop, the hotel owner must file Form 8027 for each.
How To Fill Out Form 8027
You may want the help of a tax professional to prepare your Form 8027. However, the form isn’t all that complicated. The form’s instructions provide line-by-line help:
Lines 1 and 2: These are for use if your establishment accepts credit cards, debit cards, or other types of charges.Line 3: Enter any service charges of less than 10% that you paid to your employees.Lines 4a-4c: Total tips paid indirectly and directly to your employeesLines 5 and 6: You’ll report on Line 5 your total receipts for food and beverages for the year, then multiply it by the rate in Line 6.Lines 7 a, b, and c: These lines are dedicated to determining your tip allocation, if any.Line 8: Enter the number of your directly-tipped employees who worked at this establishment.
If You Must Allocate Tips
Review the Forms 4070 that your tipped employees gave you each month. You must allocate or assign tips to your employees to reach 8% of your gross receipts for the month if they report less than that percentage on their Forms 4070. The IRS explains the three methods you can use for tip allocation on instructions for Form 8027 as well. You must also add these allocated tips to your employees’ W-2 forms because they’re taxed on these amounts. This income is not subject to withholding as long as you can prove you received less tips than were allocated to you.
Other Requirements for Filing Form 8027
If you need to file 250 or more, you must e-file them. The IRS recommends that you retain all records you used to complete Form 8027 for three years after the due date of that year’s tax return or up to two years after you pay your tax, whichever is greater.
