If you own a restaurant or food service business, you’re required to report tips in addition to managing taxes and payroll. It can be a complex process, especially if you’re new to the industry—but Infinium HR is here to help. This guide will walk you through the essentials of IRS Form 8027.
What is IRS Form 8027?
The IRS uses Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, to track the total tips earned by large food and beverage establishments annually. Employers also use this form to determine if tips need to be allocated to certain employees and calculate any amounts owed.
Who Needs to File Form 8027?
Food and beverage establishments must file Form 8027 if they meet the following criteria:
Located in the 50 states or the District of Columbia.
Employ food and beverage workers who typically receive tips from customers.
Employ more than 10 employees on a typical business day.
The IRS defines a food and beverage operation as a business that serves food or beverages for consumption on-site, excluding fast food operations. Fast food businesses are those where customers order, pay, and carry their food to a table or another location themselves.
Additional Guideline: If your business serves food cafeteria-style or adds a service charge of 10% or more to 95% of total sales (excluding carryout), your customers likely don’t pay tips.
The 10-Employee Test
To determine if your business meets the third requirement, you’ll use the 10-employee test. However, this test evaluates the average number of employee hours worked on a typical business day, not just the headcount.
To complete this process, use the IRS-provided worksheet. Remember to include all employees—not just food and beverage staff or tipped employees—when calculating the total hours. Once completed, retain the worksheet for your records, as it does not need to be submitted to the IRS.
Need Help with Compliance?
Infinium HR specializes in payroll and compliance solutions tailored to the food service industry. Let us take the guesswork out of tip reporting and IRS Form 8027 requirements so you can focus on running your business smoothly. Reach out to our team today!