Streamline IRS Form 8027 Compliance

In the hospitality industry, proper tip reporting is essential for fair employee compensation and IRS compliance. Whether you’re a hotel manager, restaurant manager, or involved in any business where employees receive tips, the IRS Form 8027 is a key requirement for accurate reporting and for avoiding penalties. This post will break down everything you need to know about Form 8027, its instructions, and how Evention LLC’s Tips+Gratuities solution can make the process faster, easier, and error-free for your business.

What is IRS Form 8027? 

IRS Form 8027, also known as the Employer’s Annual Information Return of Tip Income and Allocated Tips, is used by food and beverage establishments to report total tips employees received throughout the year. This includes tips charged to credit cards and paid out as service charges. Completing this form ensures businesses comply with IRS regulations on tip reporting.

When is Form 8027 due? 

Form 8027 is typically due by the last day of February if filing on paper, or by the last day of March if filing electronically.

Note:  You are required to file electronically if you have 250 or more forms for your business.

Information Required by Form 8027 

The IRS Form 8027 instructions specify that businesses must report several key pieces of information. These include: 

• Total Charged Tips: The total tips collected by all employees, including those added to bills (e.g., tips charged to credit cards).
• Total Charge Receipts with Tips: The total amount charged by customers for food and beverages, including any gratuities. 
• Total Service Charges of Less than 10% Paid as Wages: If your establishment includes service charges (for large parties), you need to report those amounts, particularly if they’re less than 10% of the total bill.
• Gross Receipts from Food and Beverage Operations: The total sales from food and beverages, which is important for the IRS to determine the overall tip distribution and tax obligations.

Who Needs to Fill Out Form 8027? 

Businesses with more than 10 employees are required to fill out the IRS 8027 form. This is not limited to the number of employees present at one time but applies to the cumulative total for the entire day.

Why Accurate and Timely Filing Matters 

Failing to file Form 8027 correctly or on time can result in hefty penalties. This can include fines for late filing, or worse, an audit by the IRS. You can be fined for every failure to:

• File Form 8027 on time 
• File W-2s on time and correctly
• Report Form 8027 correctly 

Fines can range anywhere from $50 to $630 for each required filing which can lead to thousands of dollars in unplanned expenses.

Challenges in Collecting Data for Form 8027 

One of the most significant challenges in completing Form 8027 is gathering and organizing the required data. Hotels and restaurants handle large volumes of transactions daily, and manually tracking tips, receipts, and service charges can quickly become cumbersome. Common difficulties include:

• Manual Data Entry Errors: When data is entered manually, there’s a higher chance of mistakes that can result in inaccurate tip reporting.
• Inconsistent Reporting: Without a standardized system, it’s difficult to ensure that data is consistently collected across all employees and shifts.
• Lost Time: Manually collecting data takes critical time away from multiple sources.

How Evention’s Tips+Gratuities Solution Simplifies the Process 

Evention’s Tips+Gratuities solution helps businesses efficiently collect, calculate, and report tips for IRS Form 8027. It addresses challenges related to accuracy, compliance, and employee satisfaction by streamlining the process, reducing errors, ensuring fair tip distribution, and enhancing transparency. Ideal for hotels, restaurants, and service-based businesses, it simplifies compliance, avoids penalties, and improves employee trust. Here are the key features that assist in preparing IRS Form 8027:

1. Integration with POS/PMS Systems: Evention seamlessly integrates with your Point of Sale (POS) and Property Management System (PMS), automatically collecting data on charged tips, receipts, and service charges.
2. Automated Tip Calculations: Our solution automates the process of calculating total charged tips and receipts, reducing the risk of errors and ensuring that all data is accurate for filing.
3. Flexible Reporting Capabilities: Evention allows you to generate detailed reports for any date range, which is incredibly helpful when preparing for annual filings or audits.

Example of How Evention Assists in Collecting Necessary Data 

Evention’s Tips+Gratuities solution collects data from property source systems for resources, hours, and payouts and then runs them through a calculation engine specifically configured for property/department payout rules. The information can be aggregated to provide the necessary summary information for the IRS Form 8027. With Evention, you can create reports that provide information that easily audit food and beverage sales, charged tips, service charges, and commissions. These audits help identify discrepancies, track revenue accurately, and ensure all financial data aligns with regulations, streamlining your compliance efforts and providing greater transparency across your operations.

Robust Reporting and Audit Capabilities 

Evention’s reporting features go beyond just collecting data – they also allow you to perform in-depth audits to ensure accuracy and compliance. Here are some examples: 

• Total Charged Tips for the Year: Evention can automatically compile the total charged tips for the entire year, simplifying the process of accurate reporting.
• Total Tips Reported by Indirectly Tipped Employees: Indirectly tipped employees (food runners or table bussers) may also have tips to report, and Evention can help trace and verify this.
• Gross Receipts from Food and Beverages: Evention can help you confirm that your gross receipts from food and beverages are reported accurately (as required by Form 8027 instructions).
• Commissions: If your business pays commissions to employees, Evention can ensure these are accurately included in your reports.

Conclusion 

Accurately completing IRS Form 8027 is critical for staying compliant with tax regulations and ensuring that your employees are compensated fairly. However, the process doesn’t have to be overwhelming. With Evention’s Tips+Gratuities solution, you can automate and simplify tip reporting, saving time, and reducing the risk of errors. Whether you’re a hotel manager or a restaurant owner, leveraging technology to streamline data collection and reporting will help ensure your business runs smoothly and stays compliant.

Ready to take the hassle out of tip reporting? Download our free eBook, The Win-Win of Automation, to learn how automating your tip distribution and reporting can save you time, reduce errors, and improve compliance.