Large Establishment Tip Reporting

If you operate a large food or beverage establishment, you have to file Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips, with the IRS every calendar year for each large food or beverage establishment in which you have employees. (These forms are transmitted with Form 8027-T, Transmittal of Employer's Annual Information Return of Tip Income and Allocated Tips, if you have more than one establishment.)

You must also provide specific information to your employees regarding their tips as part of their Form W-2, Wage and Tax Statement.

Warning Filing these forms can get pretty complicated, particularly if you have more than one establishment. We'd like to suggest you consult with an accountant when filing these forms. For an explanation of what exactly is entailed, read on!

Employer's annual information return. Your Form 8027 must contain the following information:

• your name, address, and identification number
• your establishment's aggregate gross receipts other than nonallocable receipts from providing food and beverages
• total charge receipts, other than nonallocable receipts, with charged tips and the total of those tips
• total tips received by food and beverage employees for the calendar year that were reported to you
• total service charges of less than 10 percent paid as wages to employees
• the name and Social Security number of each employee to whom tips were allocated during the calendar year and the amount of the allocation

A copy of any good faith written agreement for allocating tips must also be attached to the return.

Regardless of the tip income reported on Form 8027, you are required to withhold income tax and Social Security tax only on the tips actually reported by employees. In addition, you are required to provide each of your employees with a Form W-2.

Form 8027 must be filed by the last day of February (the filing date is April 1, 2013 for the 2012 return if you file electronically) of the year following the calendar year for which the return is made.

You must include your large food or beverage establishment identification number on the Form 8027. The identification number, which is unique to each employer, has 15 digits.

Statements provided to employees. You must provide written statements to your employees that show your name and address, the name of the employee, and the total tips allocated to the employee for the calendar year. You must also report to your employee the amount by which the Social Security tax or railroad retirement tax imposed on him or her exceeds the amount of these taxes that you can collect from the employee. This information is provided on the employee's Form W-2, Wage and Tax Statement.

A tip allocation is not required, however, if an employee requests an early Form W-2 for a year in which his employment is terminated, though you may provide a good faith estimate of the tip allocation. An amended Form W-2 must then be provided if no tip allocation is actually made or if the estimate varies by more than 5 percent from the actual tip allocation for the year. An amended Form W-2 must also be issued to an employee if the tip allocation varies by more than 5 percent from the actual amount of his tips.

Attributed Tip Income Program (ATIP). The Attributed Tip Income Program (ATIP) was a three-year pilot program, that was originally set to expire on December 31, 2009, but was extended to December 31, 2011. The program was offered to certain employers in the food and beverage industry by the IRS as an alternative to existing tip reporting programs. ATIP differed from the existing programs in that it did not require an employer to enter into an individual agreement with the IRS.

Employers who participated in ATIP reported tip income of their employees based on a formula that used a percentage of gross receipts, which were generally allocated among employees based on employer practices. Participation in ATIP was entirely voluntary for both employers and employees.