Reporting Tips is Tricky Business
NMRA knows state and federal tax codes can be a frustrating puzzle for many restaurateurs. We offer some tips that will save you headaches as tax time rolls around. As you tie up loose ends on your 2016 records in preparation for filing taxes, don’t forget about your tip-reporting paperwork. NRA has some useful information about you, your restaurant, tips, and taxes.
Many large food and beverage operations are required to file an annual report of gross receipts and tips with the Internal Revenue Service, and for some, to allocate tips to certain employees for the 2016 calendar year.
Tip reporting: What you need to know about filing IRS Form 8027 for 2016 Taxes
Form 8027, the Employer’s Annual Information Return of Tip Income and Allocated Tips, for 2016 is due at the end of February 2017 for operators who file in paper format, and a month later for restaurateurs who file electronically.
The IRS uses this form to flag restaurants where tip income may have been under-reported and where tips may have to be allocated. The IRS has also indicated in recent years that they’re on the lookout for businesses that are required to file the form but fail to do so.
As you assemble your records, here’s what you need to consider about Form 8027:
- Who’s required to file: You must file a Form 8027 for 2016 if (1) you operate a business where food and beverages are served for on-site consumption, (2) tipping is customary, and (3) you employed more than 10 employees (count all your employees, not just food and beverage staff) whose combined hours exceeded 80 on a typical business day in 2015. IRS Form 8027 uses a complicated formula to count employees and work hours, so check the Form 8027 instructions.
- When the form must be filed: For 2016, Form 8027 must be filed with the IRS on or before the last day of February 2017 for employers who file the form on paper, or March 31 for employers who file the form electronically.
- What data is required: Form 8027 requires businesses to show gross receipts, charged tips and the amount of tips employees reported during 2016, among other data. If employees collectively failed to report tips equal to 8 percent of an establishment’s gross receipts in 2016, employers must “allocate” tips to individual employees whose reported tips fell below 8 percent of their share of food-and-drink sales. The allocation process is complex; the Form 8027 instructions include details on when and how to allocate tips.
- Employees may need some reminders: Tax season is a good time to remind your employees about their obligation to report tips throughout the year.
- Federal tax law requires: Any employee who receives at least $20 in tips in a month to keep a daily record of tips they receive and report tips to their employer at least once a month by the tenth day of every month following the month in which the tips were received. This applies to any employee, whether they receive tips directly from guests (e.g. servers and bartenders) or indirectly-tipped employees (e.g. buspersons) who share in tips received by other employees. I
- RS Publication 531, Reporting Tip Income, includes details for employees on keeping daily records, reporting tips to employers, and reporting tip income on federal tax returns.
On the NRA website, find more information about tips, taxes, and what you need to know.
