Tip Reporting For ALL Restaurant Owners

By definition, a tip is deemed a transaction that occurs directly from the "customer to the employee" and the management and ownership may NEVER  receive any part of that tip. Think about that: restaurant owners cannot derive any monetary benefit whatsoever from tips and are held responsible for handling all the reporting of tip income for all of their tipped employees. That often means incurring extra costs for bookkeeping and recordkeeping, as well as management oversight to make sure the reporting is airtight. Still, no matter what, they have to make sure it is accurate. Why? Because the first records an investigating agency will look for are your payroll records.

Employer Responsibilities

 

Largely in order to avoid in-house underreporting issues, employers and managers have some strict requirements when it comes to tip reporting. Employers must essentially do four things to make sure they are following the law and doing their jobs:

Receive tip reports.
Employers must receive a tip report from each employee for every payroll period (or more often if desired).
Withhold Income and FICA taxes.
They must withhold Income and FICA taxes from each employee’s paycheck and report each employee’s tips to the IRS³. Report all tips for the month no later than the 10th day of the month following the month the tips were received.
File Form 8027.
If the restaurant is considered a large business,* then they must also file Form 8027 with the IRS at the end of every year. This is a document that summarizes the restaurant’s charged sales, total sales, charged tips and total reported tips.
Allocate necessary wages.
If the total reported tips do not add up to eight percent of the total sales, then the restaurant must go through a tip allocation process. This means that a manager is required to retro-pay more wages to the servers who recorded too few tip earnings (below eight percent of their sales).⁴