IRS Simplifies Tip Reporting
The Internal Revenue Service today released formal guidance on its new tip reporting
procedure, the Attributed Tip Income Program (ATIP) ATIP expands the existing IRS
tip reporting and education program by offering employers in the food and beverage
industry an additional tip reporting program. ATIP reduces industry recordkeeping
burdens, has simple enrollment requirements and promotes reporting tips on Federal
income tax returns.
ATIP provides benefits to employers and employees similar to those offered under
previous tip reporting agreements. However, ATIP does not require employers to meet
with the IRS to determine tip rates or eligibility. Employers are not required to
sign an agreement with the IRS to participate. Like other tip reporting programs,
participation by employers and their employees is voluntary.
Employers who participate in ATIP report the tip income of employees based on a
formula that uses a percentage of gross receipts, which are generally attributed
among employees based on the practices of the restaurant.
Employers receive significant benefits by participating in ATIP:
The IRS will not initiate an “employer-only” 3121(q) examination during the period
the employer participates in ATIP.
Tip reporting is simplified and in many cases employers will not have to receive
and process tip records from participating employees.
Enrollment is simple. There are no one-on-one meetings with the IRS and no
agreements to sign. Employers elect participation in ATIP by checking the
designated box on Form 8027, Employer’s Annual Information Return of Tip Income
and Allocated Tips.
Employees also benefit from ATIP:
Participating employees do not have to keep a daily tip log or other tip records.
The IRS will not initiate a tip examination during the period the employer and employee
participate in ATIP.
The improved income reporting procedures could help employees qualify for loans
or other financing.
Employees who work for a participating employer can easily elect to participate
in ATIP by signing an agreement with their employer to have their tip income computed
under the program and reported as wages.
Some general requirements for participating restaurants:
The employer annually elects to participate in ATIP and uses the prescribed methodology
for reporting tips by filing Form 8027 and checks the ATIP participation box.
Simplified filing is provided for small establishments not required to file Form
Employer’s establishment must have at least 20% of gross receipts as charged receipts
that reflect a charged tip.
At least 75% of tipped employees must agree to participate in the program.
Employer reports attributed tips on Employees’ Forms W-2 and pays taxes using the
formula tip rate.
The formula tip rate is the charged tip rate minus two percent – the two percent
takes into account a lower cash tip rate.
The charged tip rate is based on information from the establishment’s Form 8027.
ATIP is a three-year pilot program for food and beverage employers. Employers
will participate on an annual basis. The first annual basis begins January 1, 2007.
Details and requirements for participation for employers and employees are available
Revenue Procedure 2006-30.