Form 8027: who has to file, the 8% rule, and how allocation actually bites

Form 8027 is the Employer's Annual Information Return of Tip Income and Allocated Tips. It reports an establishment's gross receipts, charged receipts, charged tips and reported tips to the IRS, and where reported tips fall short of a threshold it allocates the difference among employees.

Who has to file

Three conditions must all be met. The establishment must be:

1. Located in one of the 50 states or the District of Columbia;
2. An establishment where tipping is customary; and
3. One that normally employed more than 10 employees on a typical business day during the preceding calendar year.

The employee test is an hours test

This is where establishments wrongly conclude they are out of scope. "More than 10 employees" is not a count of people on the payroll and not a count of people rostered. It is measured by average employee hours worked on a typical business day.

The method: take total employee hours worked during a month and divide by the number of days the establishment was open. If the resulting average exceeds 80 hours per business day, the establishment meets the threshold.

Eighty hours is ten people at eight hours. A restaurant staffed largely by part-timers can employ forty individuals across a month, never have more than nine on the floor at once, and comfortably clear 80 average hours per business day. The instinct — "we're a small place, we don't have ten employees" — is checking the wrong number.

One further point for groups: the test applies per establishment. A group with several units files a form per qualifying location, not one for the entity.

The 8% rule and allocation

If total tips reported by employees during a payroll period come to less than 8% of the establishment's gross receipts for that period, the employer must allocate the shortfall — the difference between reported tips and 8% of gross receipts — among tipped employees.

Allocated tips are reported on the employee's W-2. They are not wages the employer pays and the employer does not withhold on them, but they land on the employee's return and they are visible to the IRS as a signal about the establishment's reporting culture. A restaurant allocating year after year is publishing the fact that its staff under-report.

A lower rate than 8% can be approved on application where the facts support it, which is worth knowing for operations with a genuinely low tipping profile — heavy counter service, or a large share of receipts from non-tipped categories.

Where the numbers usually go wrong

Three coding problems account for most of the trouble:

• Service charges in the tip line. A mandatory gratuity on a party of eight is wages, not a tip. If it sits in reported tips, the 8027 is wrong — and so is the FICA tip credit computed from the same data.
• Gross receipts defined loosely. Receipts from sales that do not generate tips do not belong in the base. Getting this wrong inflates the 8% threshold and manufactures an allocation that was never owed.
• Third-party delivery. Marketplace orders, the commission treatment and any tip passed through need a deliberate position, applied consistently. This is the newest source of error and the one least likely to have been thought about when the chart of accounts was set up.

Deadlines

For the 2025 calendar year the filing dates are 2 March 2026 on paper and 31 March 2026 electronically. If you are required to file 10 or more information returns during the year in total, you must file electronically — a threshold low enough that most multi-unit groups are caught by it whether or not they have noticed.

The point of doing it properly

Form 8027 is not a form anyone gets credit for filing well. Its value is defensive and it is real: a clean 8027, supported by a tip reporting process that reconciles POS charged tips to declared cash tips, is what makes a tip examination a document request rather than an argument. The same records support the FICA tip credit, which is the one part of this that pays you back.

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Related: Restaurant payroll services · The FICA tip credit · Tip credit by state · Chart of accounts

Common questions

Who has to file Form 8027?

An establishment in the 50 states or DC where tipping is customary and which normally employed more than 10 employees on a typical business day in the preceding calendar year. The test applies per establishment, so a group files one form per qualifying location.

How is the more-than-10-employee test calculated?

By hours, not headcount. Divide total employee hours worked during a month by the number of days the establishment was open. If the average exceeds 80 hours per business day, the threshold is met.

When does tip allocation apply?

When total tips reported during a payroll period are less than 8% of the establishment's gross receipts for that period. The employer allocates the difference among tipped employees and reports it on their W-2s. A lower rate can be approved on application where the facts support it.

What are the Form 8027 deadlines?

For the 2025 calendar year, 2 March 2026 on paper and 31 March 2026 electronically. Employers filing 10 or more information returns in total during the year must file electronically.