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)

2011

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.

• More than 10 employees who work more than 80 hours

What’s New

Worksheet for Determining Whether
To File Form 8027

Expiration of the Attributed Tip Income Program (ATIP).
The Attributed Tip Income Program (ATIP) is scheduled to
expire on December 31, 2011.

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.
• Complete the Worksheet for Determining Whether To File
Form 8027 (below) 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 file 250 or more Forms 8027, you
must file the returns electronically. See Pub. 1239,
Specifications for Filing Form 8027, Employer’s Annual
Information Return of Tip Income and Allocated Tips,
Electronically, for more information.

General Instructions
Purpose of Form

Form 8027 is used by large food or beverage
establishments when the employer is required to make
annual reports to the IRS on receipts from food or beverage
operations and tips reported by employees.
All employees receiving $20 or more a month in tips
TIP must report 100% of their tips to their employer.

Who Must File

If you are an employer who operates a large food or
beverage establishment, you must file Form 8027. If you
own more than one establishment, you must file Form 8027
for each one. There may be more than one establishment
(business activity providing food or beverages) operating
within a single building, and, if gross receipts are recorded
separately, each activity is required to file a Form 8027.
A return is required only for establishments in the 50
states and the District of Columbia.
If you are required to report for more than one
establishment, you must complete and file Form
CAUTION 8027-T, Transmittal of Employer’s Annual
Information Return of Tip Income and Allocated Tips, with
Forms 8027.
A large food or beverage establishment is one to which
all of the following apply.
• Food or beverage is provided for consumption on the
premises.
• Tipping is a customary practice.

!

Oct 11, 2011

were normally employed on a typical business day during
the preceding calendar year.

Complete the worksheet below to determine if you had more
than 10 employees on a typical business day during 2010
and, therefore, must file Form 8027 for 2011. 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.
1. Enter one-half of the total employee hours worked
during the month in 2010 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 . . . . . . . . . . . . . .
3. Enter one-half of the total employee hours worked
during the month in 2010 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. . . . . . . . . . . . . . .
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 2011. . . . . . . . . . . . . . .

Note. The filing requirement (more than 10 employees) is
based on the total of all employees who provided services in
connection with the provision of food and beverages at the
establishment, not just the number of directly tipped
employees. Include employees such as waitstaff, bussers,
bartenders, seat persons, wine stewards, cooks, and kitchen
help. See Regulations section 31.6053-3(j)(10) for more
information.
A person who owns 50% or more in value of the stock of
a corporation that runs the establishment is not considered
an employee when determining whether the establishment
normally employs more than 10 individuals.
New large food or beverage establishment. File Form
8027 for a new large food or beverage establishment 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 establishment
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.

Exceptions To Filing
A return is not required for:
• Establishments operated for less than 1 month in
calendar year 2011.
• Fast food restaurants and operations where tipping is not
customary such as cafeterias or operations where 95% of
the total sales are carryout sales or sales with a service
charge of 10% or more.

Cat. No. 61013P

When To File

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

File Form 8027 (and Form 8027-T when filing more than one
Form 8027) by February 29, 2012. However, if you file
electronically, the due date is April 2, 2012.
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 February 29, 2012 (April 2, 2012 if you file
electronically).
Note. When filing a paper Form 8027 attach a copy of your
extension approval. If an approval has not been received,
attach a copy of your timely filed Form 8809.

Allocation of Tips

Where To File

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 discussed earlier.
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.

Mail Form 8027 to:
Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45999
Note. When filing a paper Form 8027, attach a copy of your
extension approval, a copy of your “lower rate”
determination letter from the IRS, your good-faith
agreement, and any other pertinent documents. See line 6
of Form 8027.
Reporting and filing electronically. If you are the
employer and you file 250 or more Forms 8027, you must
file the returns electronically. See Pub. 1239 for information
on filing Form 8027 electronically.

Penalties

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

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.
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.

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.

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.

“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.”

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.
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.

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

-2-

a check or money order made payable to the “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. 2011-1,
2011-01 I.R.B. 1, available at www.irs.gov/irb/2011-01_IRB/
ar03.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 letter ruling determination, 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.
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.

Allocated tips are not subject to withholding and are not to
be included in boxes 1, 3, 5, and 7 of Form W-2.

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. Do not attach any unrelated correspondence.

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.
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 give 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.

Type of Establishment

Check the box (check only one box) on the form that best
describes the food or beverage operation at this
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).
• An establishment that serves food, if at all, only as an
incidental part of the business of serving alcoholic
beverages.

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. The form
must be furnished to the employee 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. However,
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 no allocation was shown on the early Form W-2 or if the
estimated allocation on the early form differs from the actual
amount by more than 5%, give the employee a new Form
W-2 marked “CORRECTED” with the correct information
during January of the next year.
If you allocate tips among employees by the methods
described in the instructions for lines 7a through 7c, 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 adjust that employee’s allocation
and must review the allocable amount of all other
employees in the same establishment to assure that the
error did not distort any other employee’s share by more
than 5%.
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. However, if you discover the
allocation error on Form W-2 after you issue it to your
employee but before you send it to the Social Security
Administration (SSA), prepare a new Form W-2 with the
correct information, and send Copy A to the SSA. Write
“CORRECTED” on the employee’s new copies (B, C, and
2), and furnish them to the employee. Do not write
“CORRECTED” on Copy A of Form W-2.
You do not need to send to the IRS separate copies of
Forms W-2 showing allocated tips. The IRS will use the
information shown on the Forms W-2 that you file with the
Social Security Data Operations Center.
Tip allocations have no effect on withholding income or
social security or Medicare taxes from employees’ wages.

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.

Lines 1 Through 8
Credit Card Sales
If the credit or debit charge receipts reflect tips, then you
must enter on lines 1 and 2 the appropriate amounts shown
on the credit card or debit card charge statements. 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.

Line 1. Charged Tips for Calendar Year 2011
Enter the total amount of tips that are shown on charge
receipts for the year.

-3-

If you have allocated tips using other than the
TIP 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.

Line 2. Charge Receipts Showing Charged
Tips
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 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, b, or c to show the
method used.

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. In general,
service charges added to the bill are not tips since the
customer does not have a choice. These service charges
are treated as wages and are includible on Form W-2.

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.
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 sections
31.6053-3(j)(19) and 31.6053-3(f)(1)(iv) for details.
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 4a. Tips Reported by Indirectly Tipped
Employees
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 4b. Tips Reported by Directly Tipped
Employees
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.
Line 4a
+ Line 4b
Line 4c

Line 7b. Gross Receipts Method
If no good-faith agreement (as explained below) 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 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 the tips the employee reported for the payroll

In figuring the tips you should report for 2011, do not
include tips received by employees in December
CAUTION 2010, but not reported until January 2011. However,
include tips received by employees in December 2011, but
not reported until January 2012.

!

Line 5. Gross Receipts from Food or
Beverage Operations
Enter the total gross receipts from the provision of food or
beverages for this establishment for the year.
If you do not charge separately for providing food or
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 or beverages.
This estimate must reflect the cost to the employer for
providing the food or beverage 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.
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%. They
should report the amount of actual tips received.

!

-4-

• Single member limited liability company (LLC) treated

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.

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.

1.
2.
3.

Note. You must attach a copy of your good-faith agreement
when filing a paper Form 8027. Pub. 1239 provides
instructions on submitting a copy of your good-faith
agreement when filing electronically.

Line 8. Total Number of Directly Tipped
Employees
Enter the total number of directly tipped employees who
worked at the establishment during 2011. 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 Whether To File Form 8027, earlier.

4.

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

5.

Who Must Sign?

6.

Form 8027 must be signed as follows.
• 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.

Directly
tipped
employees

Gross receipts
for payroll
period

A
B
C
D
E
F
Totals

$18,000
16,000
23,000
17,000
12,000
14,000
$100,000

Tips reported
$1,080
880
1,810
800
450
680
$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
employee’s
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

Shortfall
employees

Allocable
amount

A
B
D
E
F

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

(Times)
Employee’s
Gross receipts share of 8% of
ratio
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 =
Total

$1,350
1,200
1,725
1,275
900
1,050
$7,500

(Minus)
Tips reported

Employee
shortfall

$1,080 =
$270
880 =
320
1,810 =
–
800 =
475
450 =
450
680 =
370
Total shortfall
$1,885
$8,000 less $6,200 (total tips reported) = $1,800 (amount allocable
among employees who had a shortfall)
(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.

• Partnership (including an LLC treated as a

In this example, the total amount of allocation is
TIP $1,801 resulting from the rounding off to whole
numbers.

partnership) or unincorporated organization. A
responsible and duly authorized member, partner, or officer
having knowledge of its affairs.

-5-

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

Employer’s Optional Worksheet
for Tipped Employees

Unreported tip income can lead to additional employer
liability for FICA taxes. 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 . . . . . . . . .
2. Enter amount from Form 8027, line 2 . . . . . . . . .
3. Divide line 1 by line 2, enter as a decimal (at least 4
decimal places) . . . . . . . . . . . . . . . . . . . . . . . .
4. Enter amount from Form 8027, line 4c . . . . . . . .
5. Enter amount from Form 8027, line 5 . . . . . . . . .
6. Divide line 4 by line 5, enter as a decimal (at least 4
decimal places) . . . . . . . . . . . . . . . . . . . . . . . .
7. Subtract line 6 from line 3; if zero or less, stop here
8. Potential unreported tips. Multiply line 7 by line 5

1.
2.
3.
4.
5.
6.
7.
8.

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.
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 above 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.

Forms

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
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 call
1-800-829-4933 or visit www.irs.gov/localcontacts for the
IRS Taxpayer Assistance Center in your area; or send an
email to TIP.Program@irs.gov and request information on
this program.

8027

Recordkeeping . . . . . . . . . . . . . . . . . .

9 hr., 33 min.

Learning about the law or the form . . . .

53 min.

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

1 hr., 5 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 email
us at taxforms@irs.gov. Enter “Form 8027” on the subject
line. Or write to the Internal Revenue Service, Tax Products
Coordinating Committee, SE:W:CAR:MP:T:M:S, 1111
Constitution Ave. NW, IR-6526, Washington, DC 20224. Do
not send the tax forms to this address. Instead, see Where
To File, earlier.

-6-