Allocated Tips Definition

Allocated tips are amounts employers give tipped employees in addition to the tips they report. Employers who operate a large food or beverage establishment are required to allocate tips to tipped employees if the total reported tips are less than 8% of the business’s gross receipts.

Allocated Tips Extended Definition
You operate a large food or beverage establishment if you offer beverages or food for consumption on-site, tipping is customary, and where more than 10 employees collectively worked more than an average of 80 hours on a typical business day.

Large food or beverage establishments need to report tips received by their employees on Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips each year.

If the total reported tip income is lower than 8% of the overall receipts for a period, the difference needs to be allocated by the employer.

Last Updated By

Rachel Blakely-Gray | Feb 14, 2023

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