It’s not easy to navigate the world of tax compliance alone. Throw the complications of the food and beverage industry on top of that and it only gets worse! If you’re struggling with whether you need to file IRS Form 8027, this article is for you.

What is Form 8027?

IRS Form 8027, or the Employer’s Annual Information Return of Tip Income and Allocated Tips, is used to report annual tip income. Form 8027 is applicable for anyone who owns a food or beverage business (establishment, in IRS lingo).

Who Needs to File Form 8027?

The IRS states that you need to file Form 8027 if you meet the following requirements:

  1. Your establishment is located in the 50 states or District of Columbia
  2. Your establishment is located where tipping of food and beverage employees is considered customary
  3. Your establishment normally employs more than 10 employees on a typical business day (10-employee test)

What About Fast Food?

If you own a fast food establishment, you might be in luck. The IRS states that a food or beverage establishment is “any business activity which provides food or beverages for consumption on the premises, other than fast food operations.”

The IRS then goes on to define a fast food operation as a business where customers purchase, pick up, and carry their food to a separate location. The definitions can get a little complicated, so feel free to contact Founder’s CPA Group for more direct guidance.

How Do I Know If Tipping Is Customary?

As a general rule, tipping is considered customary in non-cafeteria-style establishments. If customers typically leave tips for your workers, tipping is considered customary and you’ll need to file Form 8027.

And the 10-Employee Test?

There’s an optional worksheet you can use to determine whether or not the 10-employee test is applicable to your business. Be careful: this is just a worksheet, you don’t want to send it to the IRS! The instructions on the worksheet are clear: plug in the numbers and see what the result says.

If your completed worksheet exceeds IRS guidelines, your business meets the 10-employee test requirements and you’ll need to file Form 8027.

So, You Need To File. What’s Next?

Let’s assume you need to file Form 8027. As far as IRS forms go, it’s not that bad.

Introduction: Employer Information

The top section of Form 8027 is a typical IRS form. You’ll need to input your business’s name, address, and other relevant information. You’ll also need to provide your name, your Establishment number (if applicable), and the type of establishment you own.

Lines 1-4

Completing this section will require access to your financial records. You’ll need to provide the following:

  1. Total charged tips for the calendar year (Line 1)
  2. Total charge receipts showing charged tips (Line 2)
  3. Total amount of service charges of less than 10% paid as wages to employees (Line 3)
  4. Total tips reported by indirectly tipped employees (Line 4a) and total tips reported by directly tipped employees (Line 4b)
  5. Lastly, you’ll need a total of all reported tips (Line 4c)

Lines 5-6

Lines 5-6 require you to have the gross receipts from all food and beverage sales. The IRS defines “gross receipts” as the following:

  • All receipts from the provision of food or beverages from cash sales, charge receipts, charges to a hotel room (excluding tips charged to the hotel room if your accounting procedures allow these tips to be separated), and the retail value of complimentary food or beverages served to customers (Instructions for IRS Form 8027)

As a general rule, tips are not included in this category. There are some exceptions, so check with Founder’s CPA if you’re unsure on the specifics.

Lines 7-8

Lines 7-8 require you to determine tip allocation. Depending on the results of Form 8027, you may end up owing allocated tips. Put simply, you have a legal obligation to allocate tips between your employees if the total reported tip amount is less than 8% of your business’s gross receipts. It is possible to negotiate a lower rate with the IRS, however.

Filing and Due Dates

It is strongly recommended that you file Form 8027 electronically. The IRS allows e-filing up to March 31st. If you need more time and would like to file for an extension, Form 8809 may be submitted online.

Take The Easy Road: File With Founder’s CPA

Running a food and beverage establishment is hard work. Spending valuable time on IRS forms and paperwork is likely not the best use of your time! Consider bringing Founder’s CPA on board to help with all of your business accounting needs. Feel free to contact us for a free consultation: we look forward to helping you with your accounting needs!

Schedule a free consultation with Founder’s CPA today!

Curt Mastio
Post by Curt Mastio
May 31, 2019 5:00:00 PM
Curt Mastio started Founder’s CPA in 2017 and currently serves as the Managing Partner of the firm. After obtaining both his Bachelor’s and Master’s degrees in accounting from the University of Illinois in Urbana-Champaign Curt started his career in Big Four public accounting. Shortly thereafter Curt served as the Chief Financial Officer of Storage Squad began his stint as an Adjunct Instructor at Northwestern University’s Farley Center for Entrepreneurship and has been teaching Accounting & Finance to undergraduate students for 6+ years. In his current role Curt oversees strategy, operations, and business development at Founder’s CPA. Further, Curt has experience working directly with 200+ startups and small businesses providing accounting, tax, and outsourced CFO services. His industry expertise lies in the SaaS, Blockchain, Marketplace, and Fintech industries. He has served as a key advisor working directly with startups that range from pre-revenue to companies generating over $30 million dollars a year in revenue. Lastly, he serves a key role working directly with the firm’s clients that have collectively raised over $200 million in venture capital funding to date. Curt is also an active advisor, mentor, and investor in the startup ecosystem. He has facilitated numerous workshops, webinars, and presentations to incubators and other startup-centric organizations. He is also an active mentor for Techstars in both Chicago and Iowa. Outside of his daily professional duties Curt is actively involved with Beat the Streets Chicago and was a founding member of its Young Professionals Board. His efforts in both leadership and community involvement were recognized when he was awarded the Illinois CPA Society’s Outstanding Young Professional Leadership Award in 2020. He was also a panelist at their annual conference in 2022 where he spoke about his experiences starting and operating a public accounting firm. He maintains an active Certified Public Accountant designation that he obtained in 2014. Outside of work, Curt can be found spending time with his friends & family including his dog Rufus. His hobbies include golf, boating, cooking, reading, and attending sporting events & concerts.