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IRS Aims to Get More Restaurants to File Tip Form

August 2, 2010
The Internal Revenue Service has announced a new compliance initiative to increase IRS Form 8027 filings in the restaurant industry.

The IRS believes many tableservice restaurants don’t file IRS Form 8027 as required. The Employer’s Annual Information Return of Tip Income and Allocated Tips must be filed with the IRS every February by employers who operate large food and beverage establishments.

If you have tipped employees, take a look at Form 8027 to determine whether you must file the form.

Generally, Form 8027 must be filed by food and beverage establishments that meet three criteria:
1. Tipping is customary in your establishment.
2. You serve food and drink for on-premises consumption.
3. You employ more than 10 employees or their equivalent (more than 80 employee hours) on a typical day.

Employer protections
Restaurants are vulnerable when employees underreport their tip earnings because restaurateurs can be forced to pay FICA taxes on unreported tips in cases when the IRS determines tips haven’t been fully reported.

If that happens, you might qualify for a tax credit for the FICA taxes you pay on certain employee tips. Employers can take a dollar-for-dollar federal income tax credit for FICA taxes paid on a certain portion of tip income under the so-called “45B” credit in the federal tax code. Even restaurant operators who file under the Alternative Minimum Tax system can claim the 45B credit. The 45B credit is one of a handful of credits allowed under the AMT.

Also, the IRS offers voluntary tip agreements that protect employers from employer-only audits and assessments on unreported tip income if they implement employee education programs and recordkeeping procedures for reporting tips.

Visit for more information on the 45B credit and the IRS’s voluntary tip agreements.
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