If you are an employer who operates a large food or beverage establishment, you may need to file Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. This form is used to report the total amount of tips received by your employees, the amount of tips you paid to them, and the amount of tips you allocated to them if they did not report enough.
Do You Have To File Form 8027?
You must file Form 8027 if you operate a large food or beverage establishment. A large food or beverage establishment means that:
- you normally employ more than 10 employees on a typical business day during the preceding calendar year,
- tipping is customary in your business,
- your business is located in the 50 states or in the District of Columbia.
You may have more than one food or beverage establishment that meets these criteria. In that case, you must file a separate Form 8027 for each establishment.
To find out if you meet the 10 employees test mentioned above, you can use this worksheet. You determine whether you have more than 10 employees based on the average number of hours your employees work on a typical business day. When filling out the worksheet, you need to keep in mind the following points:
- count employees from all your food or beverage operations, even if a single establishment has fewer than 10 employees,
- include all workers at your food or beverage operations, not just those who serve food or drinks,
- do not count employees working at fast food establishments,
- do not apply the 10-employee rule separately to each food or beverage establishment,
- anyone who owns 50% or more of a corporation’s stock is not considered an employee for the 10-employee test; if you need additional information click here.
How To File Form 8027?
You can file Form 8027 electronically or on paper. You must file Form 8027 by February 28 of the year after the calendar year for which you’re filing the return. However, if you’re filing electronically, the deadline extends to March 31. For example, if you are filing Form 8027 for the tax year 2023, the due date is February 29, 2024 (or March 31, 2024 if you file electronically). You can request an extension of time by filling Form 8809. You should file an extension as soon as you realize you’ll need one, but not sooner than January 1, 2024, and no later than February 29, 2024.
Gross Receipts
You must report your establishment’s total income from food and drinks, also known as gross receipts, on Form 8027. These gross receipts help calculate other amounts that you need to report. They include all income from the provision of food or drinks, encompassing cash sales, credit card receipts, charges to a hotel room (without the tips charged to the hotel room), and the retail value of complimentary food or drinks served to customers.
Usually, tips are not included in gross receipts. But, if you have deducted any cash paid to tipped employees from your cash sales, then you need to include those charged tips in your gross receipts.
You can find out all the rules regarding tip income reporting on Form 8027 by going to the IRS website.
Form 8027 is used by the IRS to verify that your employees are reporting their tip income accurately. It is important to file it correctly, completely and on time so that you do not encounter penalties and other IRS complications. Especially that the tip income is subject to federal income tax, social security tax, and Medicare tax. In addition, if your employees do not report all of their tips to you or to the IRS, they too will face penalties and interest.
As an employer you are entitled to tips credit. See our blog about this subject.
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This material is for informational purposes only. It does not constitute tax, legal or accounting advice.