Own a Restaurant? Tax Tips on Tips

If you own a restaurant, then your employees probably receive tips for their great service. However, there are a few “tax tips on tips” you should know about. In general, tips are subject to withholding, and employees are required to claim all tip income, including tips via credit card transactions.


If you operate a large food and/or beverage establishment, you must file Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, to report your employee’s tip income. Criteria that define “a large food or beverage establishment” include:


  • Food or beverage is provided for consumption on the premises
  • Tipping is a customary practice
  • More than 10 employees, who work more than 80 hours, were normally employed on a typical business day during the preceding calendar year.

A worksheet for determining whether a business meets the criteria listed above is included in the instructions for Form 8027.


* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.


Tip adapted from IRS.gov[i]

[i] https://www.irs.gov/businesses/small-businesses-self-employed/reporting-tip-income-restaurant-tax-tips

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