Tip Reporting, What you need to know about form 8027
One of the necessities for us restaurateurs is to comply with the Internal Revenue Service (IRS) rules regarding tip reporting. All the employers that operate large food and beverage establishments need to report the income of their employees for the services offered and earned in the form of tips.
Form 8027 can apply to any business that operates more than one establishment in different premises. It can also be applied to multiple establishments that are situated in the same building, so long as the income receipts are recorded independently.
Allocated Tips for 2016 was due at the end of February 2017 if we preferred to file it in paper format. In case we decided to fill the form electronically for our restaurant, we would be required to submit the report by the end of March 2017.
The information in Form 8027 is used by the IRS to flag restaurants that may have under reported tip income, and where tips may have to be located. If you are a restaurant owner, you need to adhere to the set requirements, because the IRS is on the lookout for restaurants that fail to fill the form. Here is what you need to know about form 8027, and its requirements.
Who is required to file?
It is mandatory for any restaurateur to fill in a Form 8027 for 2016 if:
- I operate a business where food and beverages are served for on-site consumption.
- I have employed more than ten employees, and their combined hours exceed 80 on an ordinary business day.
- Tipping is standard operating procedure
The IRS form 8027 usually uses a complex formula to count the employees, and their work hours. We are therefore required to check with the instructions of Form 8027, to record the details as is expected of us.
When must Form 8027 be filed?
As for the year 2016, Form 8027 was required to be filed with the IRS before the end of February 2016, if it’s on paper. On the other hand, the restaurateurs that opt to file via electronic means are required to file the form by the end of March 2017.
What data is required?
The IRS Form 8027 needs businesses to show its gross receipts, the charged tips and a number of tips that your employees reported during 2016. As an employer, you are also required to include other data.
In case your employees failed to report tips that amount to 8% of the gross receipts within your restaurant, you have to distribute tips to individual employees- those that reported tips below 8% of their share of food and beverages sales. Being that the allocation process is hectic, you should check Form 8027 instructions, and include every detail regarding how and when to distribute tips to your employees.
Constantly remind your employees
Your employees may need reminders on reporting their tips. As an employer, it is your obligation to remind your employees regarding their duty to report tips all through the year. Reminders should mostly be done during the tax season.
Per the federal tax law, any employee within your establishment that receives a minimum of $20 in tips in a month, is required to keep a daily record of the tips that they receive. Your employees are also obligated to report 100% of their tip earnings to you at least once a month. This should be done on the tenth of every month tentative to the month in which they received the tips.
The reporting applies to all the employees regardless of whether they received their tips directly from guests, or they received the tips indirectly. Indirectly tipped employees share tips that are received by other employees.
The IRS Publication 531, Reporting Tip Income, comprises of guidelines for employees on how to keep daily records, how to report their tips to employers, and details on how to report tip income on federal tax returns per se.
If you fail report tip income, you should expect to face the music. Some of the consequences of failing to report include incurring heavy penalties, expensive unpaid bills for FICA taxes, high interest, and you can also face imprisonment.
Things you ought to know as an employer
1. You are required to receive a report from individual employees for every payroll period
For you to accurately report the employee’s total wages, and withhold the proper taxes, you will require a report for every payroll period. To collect this information, you can use the Employee’s Daily Record of Tips, your Point of Sale system, the IRS form 4070A, or any other form that has the following details:
- Employer’s name
- Employee’s name, SS number, and address
- Employee’s signature, and the
- The total amount of tips received by the employee.
2. You are required to withhold income and FICA tax from every paycheck, and report every employee’s tips to the IRS
If you use a payroll is service to come up with your payroll, you will be required to report the total tips filed for the payroll period as issued to you by a particular employee. You also need to report that employee’s hours and hourly rate.
This information is to be included on your Form 941, Employer’s Quarterly Payroll Tax Return. This form is filled by either your payroll service or yourself. You are also required to record each employee’s total wages on their W2 at the end of every year.
3. You need to file IRS Form 8027 at the end of every year
The IRS Form 8027, includes your restaurant’s total sales, charged tips, total reported tips, and charged sales. If tipping is a standard operating procedure, and food and beverages are served in your establishment, and you have more than 0 ten regularly employed employees, you are obligated to submit Form 8027, Employers Annual Information Return of Tip Income, and Allocated Tips every year.