Allocating Tips - 8% General rule
Answer:
As an employer, you must ensure that the total tip income reported to you during any pay period is, at a minimum, equal to 8% of your total receipts for that period.
In calculating 8% of total receipts, you do not include nonallocable receipts. Nonallocable receipts are defined as receipts for carry out sales and receipts with a service charge added of 10% or more.
When the total reported to you is less than 8%, you must allocate the difference between the actual tip income reported and 8% of gross receipts.
Employers can request a lower rate (but not lower than 2%) for tip allocation purposes by submitting an application to the IRS.
Detailed instructions for computing allocation of tips, reporting allocated tips to employees, and for requesting a lower rate can be found in the Instructions for Form 8027. (http://www.irs.gov/pub/irs-pdf/f8027.pdf).
Speak to your local CPA about the requirements of Tip Income reporting.
In calculating 8% of total receipts, you do not include nonallocable receipts. Nonallocable receipts are defined as receipts for carry out sales and receipts with a service charge added of 10% or more.
When the total reported to you is less than 8%, you must allocate the difference between the actual tip income reported and 8% of gross receipts.
Employers can request a lower rate (but not lower than 2%) for tip allocation purposes by submitting an application to the IRS.
Detailed instructions for computing allocation of tips, reporting allocated tips to employees, and for requesting a lower rate can be found in the Instructions for Form 8027. (http://www.irs.gov/pub/irs-pdf/f8027.pdf).
Speak to your local CPA about the requirements of Tip Income reporting.
