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Annual Reporting of Tip Income for Restaurants

Employers who operate a “large” food or beverage establishment are required to report the income of employees earned in the form of tips.  The IRS defines “large” establishments as meeting the following three criteria:

  • Food or beverage is provided for consumption on the premises;
  • Tipping is a customary practice; and
  • More than 10 employees, who work more than 80 hours, were normally employed on a “typical” business day during the preceding calendar year.  These employees include the wait staff, cooks, kitchen staff, bus staff and hosts.

Employers who meet all three criteria above must file Form 8027.  Restaurateurs are required to report gross receipts, charged tips and the amount of tips employees reported during 2013, among other data, on Form 8027.  Additionally, if an employer owns more than one establishment, each establishment must file its own Form 8027.

Employers who have recently opened a new large food or beverage establishment during the year must file Form 8027 if, during any two consecutive months, the average number of hours worked each business day by all employees is more than 80 hours.

There are some exceptions to filing Form 8027.  For example, food and beverage establishments that have operated for less than a month do not need to file Form 8027.  Additionally, fast food establishments and establishments where tipping is not considered customary are not required to file the form.  Finally, cafeterias and carry-out establishments that include a service charge of 10% or more do not need to file Form 8027.

Form 8027 for the 2013 tax year must be filed with the IRS by February 28, 2014.  However, those employers who file the form electronically have until March 31, 2014 to file Form 8027.

Properly reporting tip income can help restaurateurs save money by avoiding heavy penalties and expensive unpaid bills for FICA taxes, as well as lowering the chance of an audit.

If you have any questions, please contact Ken Kobiernicki or your ORBA advisor at 312.670.7444. Visit to learn more about our Restaurant Group.

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