How to File Form 8027: Employer's Annual Information Return of Tip Income

Restaurant owners already track more tip data than most businesses realize. Card tips flow through the POS, servers declare cash tips at the end of each shift, and payroll adds it all to wages every pay period.

Then early in the new year, a separate IRS return asks the employer to total the establishment's food and beverage sales, charged tips, and reported tips, and to show whether employees reported enough.

That return is Form 8027. It applies to large food or beverage establishments, and each qualifying location files its own. The IRS uses it to compare reported tips against sales. When reported tips fall below 8 percent of gross food and beverage receipts, the employer generally must allocate the shortfall to directly tipped employees, and that allocation shows up on their W-2s.

Getting it wrong causes trouble on two fronts. Employers face information return penalties and closer attention to payroll tax compliance.

Employees get unexpected allocated tips on their W-2s, which usually means a conversation nobody wants in February. Accurate tip records have also become more valuable since the employer FICA tip credit depends on them, and legislation passed in 2025 created a federal deduction for qualified tips that employees can claim through 2028.

This guide explains which establishments must file Form 8027, how to determine whether you have more than 10 employees on a typical business day, what the form reports, how tip allocation works, filing deadlines and penalties, and how tip reporting ties into related credits and deductions.

Who Must File Form 8027?

• Food or beverage establishments where tipping is customary
• More than 10 employees who normally work more than 80 hours in a typical business month
• Exception: food trucks, carryout-only establishments, or establishments where tipping is NOT customary may be exempt
• Employer must file a separate Form 8027 for each separate establishment

Filing Deadlines for 2025 Tip Income (Filed in 2026)

The paper deadline falls on February 28 (not February 29) in 2026 since 2026 is not a leap year. Electronic filers receive an extra month, March 31, 2026.

Key Data Points Required on Form 8027

The 8% Tip Allocation Rule

If total tips reported by all employees are less than 8% of gross food and beverage receipts, the employer must allocate additional tips to employees who underreported. The allocated amount fills the gap between employee-reported tips and 8% of gross receipts. Employers can apply for a lower rate (minimum 2%) from the IRS if they can demonstrate that the customary tip rate at their establishment is lower.

• Allocated tips appear in Box 8 of the employee's W-2, they are informational only and employees may or may not owe additional tax depending on their actual tip records
• Three allocation methods are available: hours-worked, gross receipts, or good-faith agreement with employees

Penalty for Late Filing

Late filing penalties apply per-form:

• Filed within 30 days of deadline: $60 per form
• Filed after 30 days but by August 1: $130 per form
• Filed after August 1 or not filed: $330 per form
• Intentional disregard: $660 per form

The Records That Sit Behind the Return

The return reports figures that have to come from records kept through the year. Reconstructing them afterwards is close to impossible and is the usual reason a filing is late or wrong.

• Gross receipts, split between those from food and drink and anything else
• Charged tips recorded on card and other non-cash payments
• Charged receipts on which those tips appeared
• Tips reported to the employer by employees, which is a separate record from what was charged
• Service charges, which are treated as wages rather than tips and are a distinct category

The last one is the most frequently miscategorised. A mandatory charge added to a bill is generally not a tip, and treating it as one affects payroll, reporting and the allocation calculation together.

Employee Reporting Is a Year-Round Obligation

The annual return depends on employees reporting their tips to the employer through the year, and that process is where most establishments are weakest.

The obligation runs both ways: employees have a duty to report, and employers have a duty to collect, to withhold on what is reported and to keep the records. Where reporting is patchy, the employer's figures are wrong before the return is even started.

A simple monthly routine works better than anything elaborate: a standard form or system entry per employee per period, collected with the same discipline as a timesheet, retained with the payroll records. It also protects the employee, since under-reported tips affect their own tax position and their social security record.

Allocation and What It Means for Staff

Where reported tips fall below the required proportion of receipts, an allocation applies, and it has real consequences for employees rather than being a paperwork exercise.

Allocated amounts appear on the employee's annual statement and affect their own return, whether or not they agree with the figure. That makes the allocation method and the underlying records something employees have a legitimate interest in, and explaining it before the statements arrive avoids a great deal of difficulty.

There are also procedures for requesting a lower rate where the circumstances of the establishment justify it. Whether that is available depends on evidence about the business, which again comes back to records kept through the year. The current rate, the allocation methods and the procedure for a reduction are in the IRS instructions for the form.

Your Point of Sale System Should Produce the Figures

Most of the data the return needs is already being captured by the till system. Whether it can be reported in the form required is a configuration question worth settling well before year end.

• Receipts split between food and drink and any other category of sale
• Charged tips separated from service charges, which are different things
• Card receipts on which tips appeared, as a distinct figure
• Reports available by period and for the full year, in a form you can keep

Where the system cannot produce the split, the answer is usually configuration rather than a new system: how items are categorised, and how a service charge is recorded against a sale. Fixing that in January for the year ahead is trivial. Reconstructing it in the following January from twelve months of transactions is not.

Frequently Asked Questions

Written by

Ankit Sarawagi, CPA, CA, MBA

Ankit leads the finance team at Profitjets, where he has worked with 500+ businesses across the US on bookkeeping, tax and CFO-level strategy. He writes about the habits that keep small business books accurate all year. Connect on LinkedIn