Large Food and Beverage Establishments

The IRS has special tip reporting and allocation rules for "large food and beverage establishments." A large food and beverage establishment is a food or beverage operation where tipping is customary and that normally employed more than 10 employees on a typical business day during the preceding calendar year. Owners of large food or beverage establishments must file Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips.  In some cases, large food and beverage establishments must allocate tips among employees.

 

Tips

All cash tips are included in an employee's gross income and subject to federal income tax. Cash tips include tips received from customers, charged tips (such as credit and debit card charges) distributed to the employee by his or her employer, and tips received from other employees under any tip-sharing arrangement.  An employee must report cash tips to his employer if they amount to $20 or more in a calendar month. If an employee fails to report tips to the employer, the employer is not liable for the employer share of FICA taxes on unreported tips until the IRS makes notice and demand to the employer.

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Tip Compliance Programs

The IRS has developed programs to help employers stay in compliance with the rules for tips. The Tip Rate Determination Agreement (TRDA) requires that tips be reported at or above a specific rate negotiated between the employer and the IRS. The Tip Reporting Alternative Commitment (TRAC) agreement requires that the employer provide ongoing education to tipped employees on tip reporting procedures. Another program, the Employer-designed Tip Reporting Alternative Commitment (EmTRAC), allows employers to design educational programs and tip reporting procedures.

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Restaurant Equipment

Code Sec. 179 allows taxpayers to deduct all or part of the cost of qualified equipment in the year it was placed into service rather than depreciating it over time.