It’s not easy to navigate the world of tax compliance alone. Throw the complications of the food and beverage industry on top of that and it only gets worse! If you’re struggling with whether you need to file IRS Form 8027, this article is for you.
What is Form 8027?
IRS Form 8027, or the Employer’s Annual Information Return of Tip Income and Allocated Tips, is used to report annual tip income. Form 8027 is applicable for anyone who owns a food or beverage business (establishment, in IRS lingo).
Who Needs to File Form 8027?
The IRS states that you need to file Form 8027 if you meet the following requirements:
- Your establishment is located in the 50 states or District of Columbia
- Your establishment is located where tipping of food and beverage employees is considered customary
- Your establishment normally employs more than 10 employees on a typical business day (10-employee test)
What About Fast Food?
If you own a fast food establishment, you might be in luck. The IRS states that a food or beverage establishment is “any business activity which provides food or beverages for consumption on the premises, other than fast food operations.”
The IRS then goes on to define a fast food operation as a business where customers purchase, pick up, and carry their food to a separate location. The definitions can get a little complicated, so feel free to contact Founder’s CPA Group for more direct guidance.
How Do I Know If Tipping Is Customary?
As a general rule, tipping is considered customary in non-cafeteria-style establishments. If customers typically leave tips for your workers, tipping is considered customary and you’ll need to file Form 8027.
And the 10-Employee Test?
There’s an optional worksheet you can use to determine whether or not the 10-employee test is applicable to your business. Be careful: this is just a worksheet, you don’t want to send it to the IRS! The instructions on the worksheet are clear: plug in the numbers and see what the result says.
If your completed worksheet exceeds IRS guidelines, your business meets the 10-employee test requirements and you’ll need to file Form 8027.
So, You Need To File. What’s Next?
Let’s assume you need to file Form 8027. As far as IRS forms go, it’s not that bad.
Introduction: Employer Information
The top section of Form 8027 is a typical IRS form. You’ll need to input your business’s name, address, and other relevant information. You’ll also need to provide your name, your Establishment number (if applicable), and the type of establishment you own.
Completing this section will require access to your financial records. You’ll need to provide the following:
- Total charged tips for the calendar year (Line 1)
- Total charge receipts showing charged tips (Line 2)
- Total amount of service charges of less than 10% paid as wages to employees (Line 3)
- Total tips reported by indirectly tipped employees (Line 4a) and total tips reported by directly tipped employees (Line 4b)
- Lastly, you’ll need a total of all reported tips (Line 4c)
Lines 5-6 require you to have the gross receipts from all food and beverage sales. The IRS defines “gross receipts” as the following:
- All receipts from the provision of food or beverages 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 (Instructions for IRS Form 8027)
As a general rule, tips are not included in this category. There are some exceptions, so check with Founder’s CPA if you’re unsure on the specifics.
Lines 7-8 require you to determine tip allocation. Depending on the results of Form 8027, you may end up owing allocated tips. Put simply, you have a legal obligation to allocate tips between your employees if the total reported tip amount is less than 8% of your business’s gross receipts. It is possible to negotiate a lower rate with the IRS, however.
Filing and Due Dates
It is strongly recommended that you file Form 8027 electronically. The IRS allows e-filing up to March 31st. If you need more time and would like to file for an extension, Form 8809 may be submitted online.
Take The Easy Road: File With Founder’s CPA
Running a food and beverage establishment is hard work. Spending valuable time on IRS forms and paperwork is likely not the best use of your time! Consider bringing Founder’s CPA on board to help with all of your business accounting needs. Feel free to contact us for a free consultation: we look forward to helping you with your accounting needs!