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What are “cash tips,” and are they included in Form 8027 reporting?

Cash tips are gratuities provided directly by customers to employees in cash form, including currency, coins, or equivalent payments (e.g., checks). For tax purposes, cash tips are treated as income and must be reported by employees if the total exceeds $20 per month. They are subject to income tax withholding, as well as Social Security and Medicare taxes.

Inclusion in Form 8027 Reporting

Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, is used by large food or beverage establishments to report employee tip income. Cash tips are indeed included in Form 8027 reporting. Here’s how they are handled:

  1. Reported by Employees: Employees report their tips to employers, which include cash, credit card, or other tipped amounts.
  2. Employer Reporting: Employers use Form 8027 to report:
    • Total sales subject to tipping.
    • Reported tips (including cash tips).
    • Allocated tips if the reported tips are below the IRS threshold (8% of gross receipts unless a lower rate is approved).

Important Considerations

  • Employers are required to allocate additional tip income to employees if the total reported tips are less than 8% of the establishment’s gross receipts.
  • Non-cash tips (like tickets or goods) are not included in Form 8027.

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