TaxBandits Now Supports E-Filing of IRS Form 8027: Streamlining Tip Income Reporting

reading time: 23 minute(s)

Running a food or beverage business means juggling a lot of moving parts. From managing customer service to handling the nitty-gritty of taxes, there’s always something demanding your attention. For businesses that rely on tips—like restaurants, bars, and catering services—this complexity is only amplified. Tracking and reporting tip income, ensuring fair allocation, and meeting IRS requirements can quickly become overwhelming. But it doesn’t have to be.

The IRS Form 8027, specifically designed for these businesses, reports tip income and ensures the fair distribution of allocated tips among employees. Historically, this process involved significant paperwork, time, and the potential for error.

Now, with TaxBandits, food and beverage establishments can e-file IRS Form 8027 with ease, eliminating the hassle of traditional paper filings. In this blog, we’ll explore how TaxBandits simplifies the process and break down the key elements of IRS Form 8027 that every food or beverage business owner should understand. Whether you’re filing for the first time or need help navigating the complexities of tip income reporting, TaxBandits is here to make the process smoother and more efficient.

What is Form 8027?

Form 8027, officially known as the “Employer’s Annual Information Return of Tip Income and Allocated Tips,” is an annual report that large food and beverage establishments must file to report annually:

• Receipts and Tips from food or beverage establishments, and
• Determine allocated tips for tipped employees.

Understanding the ins and outs of Form 8027 is critical for compliance and for ensuring your employees’ tips are correctly reported to the IRS.

Who is a Tipped Employee? In the context of Form 8027, a tipped employee is referred to as a food or beverage employee—someone who provides services directly related to serving food or drinks in an establishment where tipping is customary. This includes waitstaff, bussers, bartenders, maître d’, wine stewards and cooks and kitchen staff (If they participate in tip pooling arrangements).Some employees in a food or beverage establishment don’t qualify under this definition because their roles don’t involve direct service of food or drinks. Examples include: Coat checkers, Bellhops or Doormen.

Who Must File Form 8027?

If you are an employer who operates a large food or beverage establishment, you must file Form 8027 with the IRS, if your business meets the following conditions:

• Your business is located in the 50 U.S. states or in the District of Columbia,
• Your business is located where the tipping is considered customary for food and  beverage employees from customers
• Your business employs more than 10 employees (more than 80 hours) on a typical business day. This is known as the “10-employee test”.

Understanding 10-Employee Test The 10-Employee Test in Form 8027 is a worksheet that helps you, as an employer, determine whether your business has more than 10 employees working on a typical business day. If the test shows that you did, your business must file Form 8027. Remember, this worksheet is for your own records and should not be sent to the IRS. To complete the worksheet, make sure to consider the following: – Include employees from all your food or beverage operations, even if a single operation has fewer than 10 employees. – Count all employees at your food or beverage operations, not just those who work directly with food or drinks. – Exclude employees from fast food operations. – Do not apply the 10-employee test separately to each food or beverage operation. – Do not count individuals who own 50% or more of the corporation’s stock as employees for this test. Here is the worksheet of the 10-Employee test to determine whether to file Form 8027 or not:

Filing the Form: What’s Required?

When filing Form 8027 for tip allocation, including all required information is crucial to ensure accurate and timely submission. Here’s a breakdown of the necessary details for filing Form 8027:

1. Basic Establishment Information

• Name, Address, and EIN: You’ll need to provide your establishment’s full name, address, and Employer Identification Number (EIN).
• Establishment Number: If your business has multiple establishments under the same EIN, you must include the establishment number for each one.
• Type of Establishment: Indicate the type of establishment, which could be:
  • Evening meals only
  • Evening and other meals
  • Meals other than evening meals
  • Alcoholic beverages

2. Employer Information

• Name and Address: Provide the full name and address of the employer responsible for filing the form.

3. Credit Card Information

• Credit or Debit Card Acceptance: Indicate if your establishment accepts credit or debit cards. This helps the IRS understand how tips are processed and reported.

4. Tip Income Reporting Information

• Total Charged Tips: Report the total charged tips for the year (2024).
• Total Charge Receipts Showing Charged Tips: Provide the total charge receipts that include tips.
• Service Charges Paid as Wages: Report any service charges paid as wages to employees.
• Tips Reported by Employees: This section requires information about tips reported by both directly tipped employees and indirectly tipped employees.

5. Gross Receipts Information

• Total Receipts from Food and Beverages: Provide the total receipts from the sale of food and beverages.
• 8% or Lower IRS Rate: Multiply your gross receipts by 8% (or a lower rate approved by the IRS) to determine the tip threshold for allocation.

6. Tip Allocation Information

There are three methods to calculate the tip allocation for your employees:

• Hours-Worked Method: Allocate tips based on the number of hours worked by each employee during a payroll period.
• Gross Receipts Method: Allocate tips based on the total gross receipts of the establishment.
• Good-Faith Agreement Method: Allocate tips based on an agreement between the employer and employees, assuming it reflects a fair distribution.

7. Directly Tipped Employees

• Number of Directly Tipped Employees: Provide the total number of directly tipped employees who worked at your establishment during the reporting period.

8. Signature

• Employer’s Signature: The form must be signed by the employer (or an authorized representative).
• Title and Date: Include the employer’s title and the date when the form is signed.

When is the Deadline to File Form 8027?

The Deadline to file Form 8027 for the 2024 tax year is as follows:

• The deadline to file Form 8027 electronically is March 31, 2025.
• The deadline to file Form 8027 on paper is February 28, 2025.

What are the Penalties for Late Filing of Form 8027?

If you fail to file Form 8027 on time, you may face penalties unless you can show reasonable cause. Additionally, if the form is not completed accurately, you won’t be able to properly prepare Form W-2 for directly tipped employees, which could lead to more penalties. The IRS charges penalties for:

1. Late filing of correct forms (Form 8027 and Form W-2), including failure to file electronically if required.
2. Failure to provide correct Form W-2 to employees on time.

The penalties for late filing of Form 8027 range from $60 to $660 per form, depending on how late the submission is. Learn more

How to Request an Extension for Form 8027?

To request an extension for filing Form 8027, you must submit Form 8809 as soon as you determine that an extension is needed. Form 8809 is typically due by the return’s due date. When you submit Form 8809 electronically, you will usually receive an automatic 30-day extension for filing your Form 8027 without providing a reason. 

Please note that Form 8809 does not extend the time for paying any taxes due; it only extends the time for filing the return.

TaxBandits Streamlines Form 8027 Tax Filings

Filing Form 8027 can be time-consuming and complex, but TaxBandits simplifies it for employers with an easy-to-use platform and expert support. 

TaxBandits provides a straightforward e-filing platform for Form 8027, reducing the complexity of paper filings. You can easily enter the information about Form 8027, verify it, and submit it directly to the IRS with just a few clicks.

Before submission, TaxBandits conducts thorough error checks, ensuring your form is accurate. This helps avoid penalties for filing incorrect or incomplete information. 

TaxBandits simplifies the allocation of tips to employees by offering automatic tip calculations based on your establishment’s gross receipts.

Ready to simplify your Form 8027 filing process? Let TaxBandits help you file with ease, so you can focus on what you do best—running your business.