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CFR > Title 26 - Internal Revenue > CHAPTER I—INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY > SUBCHAPTER C—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE (Parts 30–37) > PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE > SUBPART G—Administrative Provisions of Special Application to Employment Taxes (Selected Provisions of Subtitle F, Internal Revenue Code of 1954) (§31.6001-1 to §31.7805-1) > 31.6053-3—Reporting by certain large food or beverage establishments with respect to tips.

CFR

31.6053-3—Reporting by certain large food or beverage establishments with respect to tips.

(a) Information return by an employer with respect to tips— (1) In general. An employer shall file a separate information return for each calendar year (as defined in paragraph (j)(14) of this section) with respect to each large food or beverage establishment (as defined in paragraph (j)(7) of this section) in which such employer has employees. The information return shall contain the following:
(i) The employer's name, address, and employer identification number;
(ii) The establishment's name, address, and identification number (see paragraph (a)(5) of this section);
(iii) The aggregate gross receipts (other than nonallocable receipts) of the establishment from the provision of food or beverages;
(iv) The aggregate amount of charge receipts (other than nonallocable receipts) on which there were charged tips;
(v) The aggregate amount of charged tips shown on such charge receipts;
(vi) The aggregate amount of tips actually received by food or beverage employees of the establishment during the calendar year and reported to the employer under section 6053(a) (see paragraph (j)(15) of this section);
(vii) The aggregate amount the employer is required to report under section 6051 and the regulations thereunder with respect to service charges of less than 10 percent.
(viii) The name and social security number of each employee of the establishment during the calendar year to whom an allocation was made under section 6053(c)(3) and paragraph (d) of this section and the amount of such allocation.
(2) Calendar year 1983 information return. In the case of the 1983 calendar year information return, the information required by paragraphs (a)(1)(iii) through (viii) of this section shall be reported for the period beginning with the first payroll period ending on or after April 1, 1983, and ending with the end of the 1983 calendar year. See paragraph (c) of this section relating to information required for the first quarter of 1983.
(3) Prescribed form. The return required by this paragraph shall be made on Form 8027 with the transmittal form being Form 8027T. The information required by paragraph (a)(1)(viii) of this section may be provided by attaching to Form 8027 photocopies of each employee's W-2 for whom an allocation was made. A copy of any written good faith agreements applicable to a given calendar year (see paragraph (e) of this section) shall be attached to Form 8027 for such calendar year.
(4) Time and place for filing. The information return required by this paragraph (a) shall be filed on or before the last day of February (March 31 if filed electronically) of the year following the calendar year for which the return is made with the Internal Revenue Service Center specified by the Form 8027 or its instructions. See section 6652(a) relating to the penalty for failure to file this information return.
(5) Large food or beverage establishment identification number. Each large food or beverage establishment shall have a unique identification number to be included on Form 8027 and any employer's application pursuant to paragraph (h) of this section. If an identification number is changed for any reason, for example if the establishment becomes a different “type” of establishment as described in paragraph (a)(5)(ii) of this section, or if the employer identification number changes, the employer shall notify the Service by including both the old and new identification numbers on the Form 8027 filed for the year in which the identification number was changed. An establishment identification number shall be determined as follows:
(i) The first nine digits shall be the employer's identification number (EIN).
(ii) The next digit shall identify the type of large food or beverage establishment, with the categories as follows:
(A) The number “1” signifies an establishment that serves evening meals only (with or without alcoholic beverages).
(B) The number “2” signifies an establishment that serves evening meals and other meals (with or without alcoholic beverages).
(C) The number “3” signifies an establishment that serves only meals other than evening meals (with or without alcoholic beverages).
(D) The number “4” signifies an establishment that serves food, if at all, as only an incidental part of the business of serving alcoholic beverages.
(iii) The last five digits are to differentiate between multiple establishments reporting under the same EIN number. For this purpose, the employer shall assign each establishment reporting under such employer's EIN number a unique five digit number. For example, each establishment could be assigned a unique number by beginning with “00001” and progressing in numerical sequence (i.e., “00002”, “00003”, “00004”, “00005”) until each establishment has been assigned a number.
(6) Definitions. See paragraph (j) of this section for definitions of various terms used in this section.
(b) Employer statement to employees— (1) In general. The employer shall furnish to each employee to whom an amount is allocated under section 6053(c)(3) and paragraph (d) of this section a written statement for each calendar year containing the following information:
(i) The employer's name and address;
(ii) The name of the employee;
(iii) The aggregate amount allocated to the employee for the calendar year.
(2) Prescribed form. The written statement required by this paragraph shall be made on Form W-2.
(3) Time and manner for furnishing the statement. The written statement required by this paragraph shall be due at the same time and shall be furnished in the same manner as the statement required to be furnished under section 6051. See section 6678 relating to the penalty for failure to file this statement.
(4) Employee's request for an early W-2. If an employee's employment is terminated prior to the end of a calendar year and the employee requests an early W-2 under section 6051 and § 31.6051-1(d), a tip allocation under section 6053(c) is not required to be shown on such early W-2. However, the employer may include on such early W-2 the employee's actual tip allocation under section 6053(c), if known, or a good faith estimate of such allocation. A good faith estimate of an allocation shall be signified by placing the word “estimate” next to the allocation on the employee's copy of the early W-2. An amended W-2 must be furnished to each employee to whom an amount is allocated under section 6053(c), during January of the calendar year following the calendar year for which the statement is made, if there is no tip allocation on the early W-2 or if the estimated allocation is found to vary from the actual allocation by more than 5 percent of the amount of the actual allocation.
(5) Employee reporting of tip income. Regardless of whether an employee receives an allocation under section 6053(c) and § 31.6053-3, the employee is required to report as income on his or her Federal income tax return all tips received. For tips received before October 1, 1985, an employee must be able to substantiate the amount of reported tip income as provided in section 6001 and the regulations thereunder, For tips received on or after October 1, 1985, an employee must be able to substantiate the amount of reported tip income as provided in § 31.6053-4. The Internal Revenue Service may determine that a tipped employee received a larger amount of tip income than is reflected by the employee's allocation.
(c) First quarter report of 1983— (1) In general. For the period beginning with the first day of calendar year 1983, and ending on the last day of the last payroll period ending before April 1, 1983, an employer must file an information return for each large food or beverage establishment that was a large food or beverage establishment on January 1, 1983, that contains the information required by paragraph (a)(1)(i)-(vii) of this section for such period.
(2) Prescribed form. The information return required by this paragraph shall be made on Form 8027. The returns for the first calendar quarter of 1983 and for calendar year 1983 may be incorporated onto a single Form 8027 but must separately set forth the required information for each of the two return periods.
(3) Time and place for filing. The time and place for filing the information return required by this paragraph shall be the same as for the calendar year 1983 information return. See paragraph (a)(4) of this section.
(d) Allocation of excess of 8 percent of gross receipts over the aggregate amount (1) In general. An employer that operates a large food or beverage establishment shall allocate (as tips for purposes of the requirements of section 6053(c) among tipped employees at such establishment performing services during any payroll period an amount equal to the excess of:
(i) Eight percent of the gross receipts (other than nonallocable receipts) of such establishment for the payroll period, over
(ii) The aggregate amount of tips reported by employees at such establishment to the employer under section 6053(a) for such period. For this purpose, if an employee reports under section 6053(a) on the basis of a period other than a payroll period such employee may specify what portion of his or her reported tips are attributable to a given payroll period when reporting tips to the employer under section 6053(a). In the absence of any specification by the employee, the employer shall allocate the amount of tips reported by an employee to a given payroll period either:
(A) By multiplying the aggregate amount of those reported tips by a fraction, the numerator of which is the gross receipts attributable to the tipped employee for the payroll period and the denominator of which is the gross receipts attributable to the employee for the entire tip reporting period; or
(B) By multiplying the aggregate amount of those reported tips by a fraction, the numerator of which is the hours worked by the employee during the payroll period and the denominator of which is the total hours worked by the employee during the entire tip reporting period.

Code of Federal Regulations

With respect to each establishment, the employer shall choose the method described in either paragraph (d)(1)(ii)(A) or paragraph (d)(1)(ii)(B) of this section for a calendar year and apply such method consistently in making all allocations required by the preceding sentence. If an employee is employed in more than one of an employer's food or beverage operations, such employee may specify what portion of his or her reported tips are attributable to a given operation when reporting tips to the employer under section 6053(a). In the absence of any specification by the employee, the employer shall allocate the amount of tips reported by the employee to a given food or beverage operation in a manner similar to that provided above for allocation of tips among payroll periods. The employer shall choose the method described in either paragraph (d)(1)(ii)(A) or paragraph (d)(1)(ii)(B) of this section for a calendar year and apply such method consistently in making all allocations required by the preceding sentence.
(2) Employer not liable to employees for allocations. An employer who makes allocations (as tips for purposes of the requirements of section 6053(c) and this section) among such employer's employees in accordance with paragraph (d) and either paragraph (e) or (f) of this section shall not be liable to any employee if any amount is improperly allocated. However, if an employee's total tip allocations for a calendar year as reported on Form W-2 varies from the correct allocation amount by more than 5 percent of the correct allocation amount, the employer shall adjust such employee's allocation. If such an adjustment of an employee's allocation is required, the employer shall also review all tips allocations made to other employees in the same establishment to assure that the error did not distort other allocated amounts by more than 5 percent. Any adjustments made for variances of more than 5 percent shall be reflected in amended W-2's issued to the affected employees. Tip allocations made under this section shall have no effect on the withholding responsibilities of the employer under subtitle C of the Code. Withholding on tips is authorized only with respect to amounts of tips reported to employers by employees under section 6053(a).
(e) Allocation pursuant to a good faith agreement. The amount determined under paragraph (d)(2) of this section for each payroll period must be allocated among tipped employees providing services during such payroll period either on the basis of a good faith agreement described in this paragraph, or, if there is no good faith agreement applicable with respect to the payroll period on the basis of the allocation method provided in paragraph (f) of this section. A good faith agreement is a written agreement consented to by the employer and at least two-thirds of the members of each occupational category of tipped employees (e.g., waiters, busboys, maitre d's) employed in the large food or beverage establishment at the time the agreement is adopted which:
(1) Provides for the allocation of the amount described in paragraph (d)(1) among tipped employees in a manner that, in combination with the tips reported by such employees under section 6053(a), will reflect a good faith approximation of the actual distribution of tip income among such tipped employees;
(2) Is effective prospectively beginning with the first day of a payroll period that begins after the date of adoption, but in no event later than the first day of the succeeding calendar year. However, a good faith agreement may be effective for calendar year 1983 if adopted on or before December 31, 1983.
(3) Is adopted at a time when there are tipped employees employed by the employer in each occupational category of tipped employees (e.g., waiters, busboys, maitre d's) which would be affected by the agreement; and
(4) May be revoked prospectively by a written instrumnent adopted by a least two-thirds of the tipped employees who are employed in the establishment in occupational categories affected by the agreement at the time of the revocation. A revocation of an agreement shall be effective only at the beginning of a payroll period.
(f) Allocation method to be used in the absence of a good faith agreement. (1) In a case in which there is no good faith agreement in effect and the aggregate amount of tips reported pursuant to section 6053(a) with respect to a payroll period is less than 8 percent of the establishment's gross receipts for the payroll period, the employer shall allocate the difference as tips for purposes of section 6053(c) as provided in this paragraph. No allocations shall be made to indirectly tipped employees. An allocation shall be made to each directly tipped employee performing services for the establishment who has a reporting shortfall (as determined under paragraph (f)(1)(v) of this section) for the payroll period. The amount of each allocation shall be determined in the following manner:
(i) Multiply the amount of the establishment's gross receipts for the payroll period by 8 percent (0.08).
(ii) Determine the aggregate amount of tips reported for the payroll period by indirectly tipped employees.
(iii) Subtract from the amount determined under paragraph (f)(1)(i) the aggregate amount of tips reported by indirectly tipped employees as determined under paragraph (f)(1)(ii) of this section. The excess is the directly tipped employees' aggregate share of 8 percent of the gross receipts of the establishment for the payroll period.
(iv) For each directly tipped employee, multiply the amount determined under paragraph (f)(1)(iii) of this section by a fraction, the numerator of which is the amount of gross receipts of the establishment for the payroll period that is attributable to the employee and the denominator of which is the aggregate amount of gross receipts for the payroll period that is attributable to all directly tipped employees. The product is each directly tipped employee's share of 8 percent of the gross receipts of the establishment for the payroll period. The employer may determine the fraction described in the first sentence of this subparagraph by substituting for the numerator the number of hours worked by the directly tipped employee during the payroll period and by substituting for the denominator the number of hours worked by all directly tipped employees during the payroll period. For payroll periods beginning after December 31, 1986, the method of allocation described in the preceding sentence may be used only by an employer that employs less than the equivalent of 25 full-time employees (as defined in paragraph (j)(19) of this section) at the establishment during the payroll period.
(v) For each directly tipped employee, determine the excess, if any, of the amount determined under paragraph (f)(1)(iv) of this section over the amount reported as tips by the employee for the payroll period pursuant to section 6053(a). Such excess, if any, is the employee's shortfall for the payroll period.
(vi) Subtract from the amount determined under paragraph (f)(1)(i) of this section the aggregate amount of tips reported pursuant to section 6053(a) by all directly and indirectly tipped employees for the payroll period. The excess is the amount to be allocated as tips among directly tipped employees who had a shortfall for the payroll period as determined under paragraph (f)(1)(v) of this section.
(vii) For each directly tipped employee who had a shortfall for the payroll period, multiply the amount determined under paragraph (f)(1)(vi) of this section by a fraction, the numerator of which is the amount of such employee's shortfall (determined under paragraph (f)(1)(v) of this section and the denominator of which is the aggregate of all shortfalls for the payroll period for all directly tipped employees. The product is the employee's allocation for the payroll period.
(2) The provisions of this paragraph may be illustrated by the following examples:

Code of Federal Regulations

Example 1. X is a large food or beverage establishment that has chosen to make tip allocations using its actual payroll period and gross receipts attributable to employees. X had gross receipts for a payroll period of $100,000 and tips reported for the payroll period of $6,200. Directly tipped employees reported $5,700 while indirectly tipped employees reported $500.
Directly tipped employees Gross receipts for payroll period Tips reported
A 18,000 1,080
B 16,000 880
C 23,000 1,810
D 17,000 800
E 12,000 450
F 14,000 680
Total 100,000 5,700
The allocation computations would be as follows: (1) $100,000 (gross receipts)×0.08=$8,000. (2) Tips reported by indirectly tipped employees=$500. (3) $8,000−$500 (indirect employees tips)=$7,500. (4)
Directly tipped employees Directly tipped share of 8 pct gross × Gross receipts ratio = Employee share of 8 pct gross
A $7,500 18,000/100,000 1,350
B 7,500 16,000/100,000 1,200
C 7,500 23,000/100,000 1,725
D 7,500 17,000/100,000 1,275
E 7,500 12,000/100,000 900
F 7,500 14,000/100,000 1,050
Total 7,500
(5)
Directly tipped employees Employee share of 8 pct gross − Tips reported = Employee shortfall
A $1,350 $1,080 $270
B 1,200 880 320
C 1,725 1,810
D 1,275 800 475
E 900 450 450
F 1,050 680 370
Total shortfall 1,885
Since employee C has no reporting shortfall there is no allocation to C. (6) $8,000−6,200 (total tips reported)=$1,800 (amount allocable among shortfall employees). (7)
Shortfall employees Allocable amount × Shortfall ratio = Amount of allocation
A $1,800 270/1885 $258
B 1,800 320/1885 306
D 1,800 475/1885 454
E 1,800 450/1885 430
F 1,800 370/1885 353

Code of Federal Regulations

Example 2. Assume the same facts as in example 1 except that the employer uses employee hours worked to calculate tip allocations.
Directly tipped employees Hours worked in payroll period Tips reported
A 40 $1,080
B 35 880
C 45 1,810
D 40 800
E 15 450
F 25 680
Total 200 $5,700
The allocation computations would be as follows: (1) $100,000 (gross receipts)×0.08=$8,000 (2) Tips reported by indirectly tipped employees=$500
Code of Federal Regulations 374
(3) $8,000−$500 (indirect employees tips)=$7,500 (4)
Directly tipped employees Directly tipped share of 8 pct gross × Hours worked ratio = Employee share of 8 pct gross
A $7,500 40/200 $1,500
B 7,500 35/200 1,313
C 7,500 45/200 1,688
D 7,500 40/200 1,500
E 7,500 15/200 563
F 7,500 25/200 938
(5)
Directly tipped employees Employee share of 8 pct gross − Tips reported = Employee shortfall
A $1,500 $1,080 $420
B 1,313 880 433
C 1,688 1,810
D 1,500 800 700
E 563 450 113
F 938 680 258
Total shortfall $1,924
Since employee C has no reporting shortfall there is no allocation to C. (6) $8,000−6,200 (total tips reported)=$1,800 (amount allocable among shortfall employees). (7)
Shortfall employees Allocable amount × Shortfall ratio = Amount of allocation
A $1,800 420/1,924 $393
B 1,800 433/1,924 405
D 1,800 700/1,924 655
E 1,800 113/1,924 106
F 1,800 258/1,924 241

Code of Federal Regulations

Example 3. X is a large food or beverage establishment that has chosen to make tip allocations using a calendar year period. X had gross receipts for a calendar year of $2,000,000 and tips reported for the calendar year of $176,000. The amount to be allocated as tips is equal to the excess of 8 percent of the gross receipts of the establishment for the calendar year over the aggregate amount of tips reported by the employees of the establishment to the employer under section 6053(a) for the calendar year. Because the reported tips for the year ($176,000) are in excess of 8 percent of the gross receipts ($2,000,000× .08=$160,000), no tip allocations are made to the employees of this establishment for the calendar year.

Code of Federal Regulations

Example 4. X is a large food or beverage establishment that has chosen to make tip allocations using a calendar year period and gross receipts attributable to employees. X had gross receipts for a calendar year of $1,500,000 and tips reported for the calendar year of $110,000. Directly tipped employees reported $94,000 while indirectly tipped employees reported $16,000.
Directly tipped employees Gross receipts for calendar year Tips reported
A 260,000 $18,600
B 240,000 14,600
C 380,000 31,200
D 260,000 13,000
E 160,000 6,000
F 200,000 10,600
Total $1,500,000 $94,000
The allocation computations are as follows: (1) $1,500,000 (gross receipts) ×0.08=$120,000. (2) Tips reported by indirectly tipped employees=$16,000. (3) $120,000−16,000 (indirect employees tips)=$104,000. (4)
Directly tipped employees Directly tipped share of 8 pct. gross X Gross receipts ratio = Employee share of 8 pct. gross
A $104,000 260,000/1,500,000 $18,027
B 104,000 240,000/1,500,000 16,640
C 104,000 380,000/1,500,000 26,347
D 104,000 260,000/1,500,000 18,027
E 104,000 160,000/1,500,000 11,093
F 104,000 200,000/1,500,000 13,867
(5)
Directly tipped employees Employee share of 8 pct. gross − Tips reported = Employee shortfall
A 18,027 18,600
B 16,640 14,600 2,040
C 26,347 31,200
D 18,027 13,000 5,027
E 11,093 6,000 5,093
F 13,867 10,600 3,267
Total shortfall 15,427
Since employees A and C do not have a reporting shortfall there are no allocations to them. (6) $120,000−110,000 (total tips reported)=$10,000 (amount allocable among shortfall employees). (7)
Shortfall employees Allocable amount × Shortfall ratio = Amount of allocation
B 10,000 2,040/15,427 $1,322
D 10,000 5,027/15,427 3,259
E 10,000 5,093/15,427 3,301
F 10,000 3,267/15,427 2,118
Code of Federal Regulations 375
Total $10,000

Code of Federal Regulations

Example 5. Assume the same facts as in example 4 except that the employer has chosen the employee hours worked method of computing tip allocations, the calendar year gross receipts were $1,000,000, and the tips reported for the calendar year were $74,000. Directly tipped employees reported $70,000 while indirectly tipped employees reported $4,000.
Directly tipped employees Hours worked in the calendar year Tips reported
A 2,000 $11,800
B 1,750 9,800
C 2,250 15,100
D 2,000 9,000
E 750 4,500
F 1,250 7,800
G 490 3,200
H 510 2,800
I 200 800
J 1,000 5,200
Total 12,200 $70,000
The allocation computations would be as follows: (1) $1,000,000 (gross receipts) × 0.08 = $80,000. (2) Tips reported by indirectly tipped employees = $4,000. (3) $80,000 − $4,000 (indirect employee tips) = $76,000. (4)
Directly tipped employees Directly tipped share of 8 pct. gross × Hours worked ratio = Employee share of 8 pct. gross
A $76,000 2,000/12,200 $12,459
B 76,000 1,750/12,200 10,902
C 76,000<
Tips