Tip Reporting (Form 8027)

Form 8027 is the IRS annual return where employers with a large food or beverage establishment report food and beverage receipts, tips and allocated tips. It is separate from the monthly tip reports employees give their employer.

Not every restaurant files it. An establishment must meet the IRS size and tipping tests, and each qualifying location files its own return.

Who Must File Form 8027?

The IRS instructions define a large food or beverage establishment as an operation in the 50 states or D.C. where tipping is customary and the employer normally employed more than 10 employees on a typical business day during the preceding calendar year.

Count all employees, not just food or beverage staff. Fast-food operations are excluded. Tipping is generally not customary in cafeteria-style operations, or where at least 95% of sales carried a service charge of 10% or more.

What Does Form 8027 Report?

The Form 8027 instructions walk through one establishment's calendar year:

• Charged tips and the charge receipts that show them (lines 1 and 2)
• Service charges of less than 10% paid to employees as wages (line 3)
• Tips reported by directly and indirectly tipped employees (line 4)
• Gross receipts from food and beverages, and 8% of that total (lines 5 and 6)

Gross receipts include all receipts from providing food or beverages. They generally exclude tips, state and local taxes, and merchandise sales such as souvenirs.

How Does the 8% Allocation Rule Work?

Employers must allocate tips when the total tips reported during a payroll period are less than 8% of gross receipts, or the approved lower rate, for that period.

Only directly tipped employees with a reporting shortfall receive allocations. The instructions offer three methods: hours worked, gross receipts, or a good-faith agreement. Allocated tips go in W-2 box 8 and are not subject to withholding.

When Is Form 8027 Due and How Is It Filed?

The general rule is the last day of February, or March 31 if filing electronically. For 2025 returns, the instructions set March 2, 2026 for paper and March 31, 2026 for electronic filing. Check the instructions for your filing year.

Employers required to file 10 or more information returns during the year must file electronically through the FIRE system. Form 8027-T transmits more than one paper Form 8027 and is not filed with electronic returns.

How Do Employees Report Tips to Employers?

Employees report cash tips unless the total is less than $20 per month from that employer. Reports are due by the 10th day of the following month, or the next business day if the 10th is a weekend or holiday.

Employers must withhold income tax and the employee's Social Security and Medicare tax on reported tips, and retain the tip reports with other employee records.

How Does HR Cloud Help With Tip Reporting Records?

The 10-employee test and the hours-worked allocation method both rest on hours and headcount. HR Cloud's Time Clock captures time entered in the platform or on mobile, and People HRIS keeps profiles, history and documents in one employee record.

Tip calculations and the Form 8027 filing stay with your payroll provider and tax adviser. Shift Planner shows who is scheduled and available. To see the tools together, request a demo.

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Frequently Asked Questions

Q: What happens if an employer misses the Form 8027 deadline?

A: The instructions say the law provides a penalty for not filing on time unless you show reasonable cause. Separate penalties apply to late or incorrect Forms W-2.

Q: Do service charges count as tips on Form 8027?

A: No. Line 1 says not to include service charges. Line 3 covers service charges of less than 10% paid to employees as wages, and receipts with a 10% or higher service charge are nonallocable.

Q: Is Form 4070 still required for employee tip reports?

A: No IRS form is required; a written statement works. Publication 531 calls Forms 4070 and 4070A historical. Include name, address, Social Security number, signature, period and total cash tips.

Q: How do employers show cash tips on Form W-2?

A: The IRS says employers must separately report total cash tips reported to them in Box 12, code TP and include the Treasury Tipped Occupation Code in Box 14b.

Q: Is the employer liable for taxes on unreported tips?

A: The IRS says the employer is not liable for its share of Social Security and Medicare tax on unreported tips until the IRS makes notice and demand for the taxes.

Q: Where is a paper Form 8027 mailed?

A: For 2025 returns, the instructions say to mail it to the Department of the Treasury, Internal Revenue Service, Ogden, UT 84201. Confirm the address in each year's instructions.