How Do I Make Sure My Restaurant is Following IRS Tip Reporting Guidelines for 2010? + 5 Ways to Stay Informed

Erica Phillips
November 22, 2011 — 2,034 views  
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As a restaurant or bar owner, you know the importance of staying abreast of tip and tax related laws? How do you do that? Tips are subject to the full range of employment and withholding taxes. They are compensation received for services rendered by your employees.

Here are the Top 3 reasons to make sure you are up on the IRS guidelines for the Form 8027, “Employer’s Annual Information Return of Tip Income and Allocated Tips, with the IRS.”

  1. You operate a business where food or beverage tipping is customary
  2. you have greater than 10 employees
  3. Your food or beverage is sold for consumption on the premises

For a complete guide on tip income reporting rules from the IRS, read the instructions for IRS Form 8027 and Publication 15, IRS Employer’s Tax Guide. You may find printable pdf versions of all of the publications listed here by going online and searching for “IRS form _______” with the form number in the blank space.

Here are some other Forms and Reports that you should consider using with your Restaurant payroll:

  1. On the “Employee’s Report of Tips to Employers,” you, the restaurant owner, receives written proof each payroll period of the of employee’s tips.

2. FICA Tip Credit. IRS Form 8826. This tax credit is a “general business credit.” Your restaurant may be able to reduce federal income taxes by the amount of FICA (Social Security and Medicare) taxes paid to employees on certain tips. These FICA tax payments have to do with FICA taxes you pay on tips beyond those tips used as a “tip credit” to meet your requirement to pay employees the federal minimum wage. This is the 45(B) credit. In order to properly calculation this, it is a good practice to use an experienced restaurant payroll company who has the software and experience calculating payroll tips, and the review of an cpa with restaurant tax experience.

Now that you have details on Tax Tip Reporting, we want to give you practical resources to stay abreast of the payroll tax filing requirements.


Besides understanding the tax laws in detail, it is helpful to have a network of experts to get answers from. Here are 5 ways successful restaurant owners and managers stay informed:

  • Become a member of a major restaurant industry association, such the National Restaurant Association or your state organization, such as the California Restaurant Association. Even your city may have a local chapter. For example, San Diego has a local chapter of the CRA. They have mixers and meetings. Go with the intention of making 10 to 20 good contacts with non-competing restaurant owners, so that you may share industry knowledge.
  1. Other times, you can post to the group and get answers the next day.
  • You should also use the services of a good cpa, and bookkeeping and accounting service, often with QuickBooks® experience, who is knowledgeable in the tax laws surrounding the restaurant and food service industry.
  1. Specialists in the restaurant industry will have training, tools and education specific to restaurant payroll taxation.
  • And, remember to read and stay informed. You are on the internet reading this article. You may find relevant article sites and blogs, bookmark them, and check back once a month for new information. Or, you can subscribe to RSS feeds from these sites to be kept up-to-date-on the latest information.

We hope this information is helpful to your restaurant business!

For more information, and to see how to better streamline the payroll tax and administrative side of the business, you may contact Pink Payroll. We can answer a few questions, or provide you with a Quick Quote.

Tax laws change frequently, so use this information, but make your final business decision taking into account the current advice of your cpa and payroll service. The information contained herein is for informational and educational purposes only, and not tax filing purposes.


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Erica Phillips

Erica Phillips is a graduate of San Diego State University, Business Administration. She has received honors for volunteer work, including a Congressional Medal presented in Washington, DC for Volunteer work. After positions as a marketing executive at Carnation (Nestle SA) and other corporate marketing, finance and sales positions, she has been an entrepreneur for over 15 years. She advises businesses on marketing, finance and budgeting as it relates to payroll services. Erica also provides a full range of related services, including On-Line Payroll Submission and reports, please visit