The IRS Dips Into Your Tips: The IRS Hits Hard on Tip Income

The IRS is cracking down on tip income Nationwide. It's not enough that service industry employees work long hours for little pay; the Tax Man wants his cut. Here's the rub on new IRS compliance initiatives to increase IRS Form 8027 filings in the restaurant industry.

Taking Your Tips: The IRS wants to increase the amount of Restaurants that file IRS Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips". The form is required to be filed with the IRS every February in the foods or beverage industry where tipping is the norm. According to the National Restaurant Association (NRA), the IRS's chief priority is to make sure tip income accounted for.

No Escape: IRS Form 8027 gives the IRS data on all the tips reported for any applicable establishment. With this form exposing any restaurant's tip underreporting secrets, the IRS won't hesitate to closely investigate any establishment where they feel tips are underreported. The result? You're caught!

Who Must File?

The IRS wants any "large" food or beverage establishment that operates at more than one site to file IRS Form 8027 for each one. The IRS defines "large" as any establishment that meets the following:

1. Food and/or beverage is served
2. Tipping is customary
3. More than 10 employees who worked more than 80 hours were employed and present on a typical business day during the prior year

To see if number three applies to you, take the total hours worked by the entire staff for any average period (month, quarter, or year) then divide by the number of days in the period. If the number is larger than 80, you need to file IRS Form 8027.

The IRS Watchdogs

The IRS is cracking down on compliance across the board. No matter what industry or niche you occupy, now's not the time to attempt to cheat the Taxman. He will come down on you, and he'll do it with a vengeance. Take it from the IRS Hitman.