The National Restaurant Association's
Tip Reporting
Education Kit
has tools to help everyone in the restaurant — from managers to servers — understand tip reporting. |
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What you need to know if you EARN tips
1. 100% is the magic number: All tips are taxable.
2. You must record your tips daily.
3. You must report your tips to your employer.
4. Not reporting your tips is a big deal.
What you need to know if you EMPLOY tipped workers
1. You are required to gather employees' tip reports.
2. You must report your employees' tips to the IRS and withhold taxes.
3. Certain employers must file Form 8027 with the IRS — and in some cases, "allocate" tips.
4. A word to the wise: Employers, educate your employees!
The 8% Myth
Many restaurant employers and restaurant employees may have heard the false rumor that tip-earners only need to report tips equal to 8% (or perhaps some other number, such as 10%) of their sales. That's a widespread misconception.
The $0 Paycheck Situation
When employers withhold taxes from tipped employees' paychecks, they base the amount withheld on both the tip income and cash wages employees receive. Sometimes tipped employees' paychecks may not be big enough for the employer to withhold all the required income and payroll taxes. In this "$0 paycheck" situation, here are a few tips for employers and employees.
Last updated February 2002
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