What Are Cash Tips, and Are They Included in Form 8027 Reporting?

Cash tips are gratuities customers give directly to employees. They can be in the form of bills, coins, or checks. For tax purposes, cash tips count as income. Employees must report them if they receive more than $20 in a calendar month. These tips are subject to federal income tax, Social Security, and Medicare withholding.

Cash Tips and Form 8027 Reporting

Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, applies to large food and beverage establishments. Employers use this form to show how much tip income their employees received. Cash tips are included in Form 8027 reporting.

Here’s how the process works:

1. Employee Reporting

   • Employees report their cash tips to the employer.

   • Employers then add these tips to other reported amounts, such as credit card tips.

2. Employer Reporting
   Employers use Form 8027 to report:

   • Total sales subject to tipping.

   • Reported tips, including cash tips.

   • Allocated tips if reported tips fall below the IRS threshold (8% of gross receipts unless the IRS approves a lower rate).

👉 Related: Form 8027 Software

Important Considerations

• Employers must allocate extra tip income if the total reported is less than 8% of gross receipts. As a result, employees may see additional tips added to their income for tax reporting purposes.

• Non-cash tips, such as tickets, gift cards, or goods, do not count toward Form 8027 reporting.

👉 Related: IRS Form 8027 Filing Requirements