REPORTING TIPS TO THE INTERNAL REVENUE SERVICE

Q.  Are tips taxable income?

 A.  Yes, tips are taxable income and should  be reported to the
employer and on the
 individual tax return. This includes tips earned by or shared with all
employees --
 food servers, bartenders, bussers, pull-tab sellers, etc. See
Publication 1872, Tips on
 Tips A Guide to Tip Income Reporting for Employees.

Q.  Is only 8% of an employee's total sales reported as tips?

 A.  No, 100% of tips are taxable. See Publication 1875, Tips on Tips A
Guide to
 Tip Income Reporting for Employers.

Q.  What is an employee's responsibility for tip reporting?

 A.  If an employee receives $20.00 or more in tips in any one month,
the employee
 must report all tips so that all Federal income tax, social security,
and Medicare
 taxes, and state income tax if applicable, may be withheld. See
Publications 1872
 and 1244, Employee's Daily Record of Tips and Report to Employer.

Q.  What is an employer's responsibility for tip reporting?

 A.  To educate employees on tip reporting, providing a procedure for
employees to
 report their tips and, in turn, properly report employees tips on
Federal returns.
 See Publication 1875.

Q.  How do I obtain Publications 1872, 1875, and 1244?

 A.  Visit the IRS website at www.irs.gov or call 1-800-829-3676.

Q.  Where do I go for more help about tips?

 A.  For questions relating to reporting tip income, call:  Terri
Anderson, IRS
 Exempt Organizations Revenue Agent, at (651) 312-7720 (not toll free).

      For questions not relating to tip income, call:  IRS Exempt Organizations
 Customer Service, 1-877/829-5500 (toll free).

Visit the IRS Internet sites:

www.irs.gov or
www.irs.gov_info/eo/index.Html

The next article will discuss the Form 8027 and TRAC agreements.
 

 Tip Income Article From St. Paul IRS Office

Reporting Tips to the Internal Revenue Service
(The second article on tips in a series.)

Q:  What is the Form 8027?

A:  The Form 8027, Employer's Annual Information Return of Tip Income
and Allocated Tips,
      reports to the Internal Revenue Service items such as your gross
receipts, charged receipts,
      total charged tips, tips reported, and allocation of tips.

Q:  Who must file the Form 8027?

A:  A food or beverage establishment:
      1.  who provides for consumption of food and beverages on the
premises,
      2.  where tipping is a customary practice, and
      3.  where more than 10 employees, who work more than 80 hours,
were normally employed
           on a typical business day during the preceding year. The
filing requirement (more than
           10 employees) is based on the total of all employees at the
establishment, not just the
           number of directly tipped employees.

Q.  When is it due?

A:  The form 8027 is an annual return and is due by March 1 of the
following calendar year.

Q.  Why does the employer have to allocate tips?

A:  As the employer you are required to allocate tips among employees
who receive them if the
      total tips reported to you during any payroll period are less that
8% of your establishment's
      gross receipts for that period.

Q.  If the employer allocates tips does that mean that employees are not
required to report their
      tips to the employer?

A:  No. All employees receiving $20.00 or more a month in tips must
report
     100% of their tips to their employer.

Q.  How does the employer allocate tips as required by line 7 of the
Form 8027?

A:  There are three methods to allocate tips:  hours worked, gross
receipts, or good faith
      agreement. Call the Internal Revenue Service at 1-800-829-3676 to
order your copy
      of the Form 8027 and instructions.

Q.  If an employer's only tipped employees are pulltab sellers must
these employees report their tips?

A:  All employees receiving $20.00 or more a month in tips must report
100%
     of their tips to their employer. However, the employer is not
required to file a Form 8027

Q.  Where do I go for help about tips?

A.  Terri Anderson, Exempt Organizations Revenue Agent at 651-312-7720.

EO Customer Customer Service 1-877-829-5500 (Note:  If you have
non-tip-related questions.)
Our Internal Revenue Service Web site:  www.Irs.Ustreas.Gov
Our EO IRS Web site:  www.Irs.Ustreas.Gov/bus_info/eo/index.Html

The next article will focus on TRAC agreements.