US Internal Revenue Service: p3144

8/14/2019 US Internal Revenue Service: p3144

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TipsTips

onTipTipsA Guide to

Tip Income Reportingfor Employers in Businesses

Where Tip Income is Customary

v e r c o u n t e r p e r s o n b e v e r a g e s e r v e r w a i t p e r s o n s s

b e v e r a g e s e r v e r b a r t e n d e r m a i t r e d d e l i v e r y d r i v e

r w a i t p e r s o n b u s s e r b a r t e n d e r m a i t r e d d e l i v e

u s s e r b a r t e n d e r m a i t r e d d e l i v e r y d r i v e r c o u n t e

y d r i v e r c o u n t e r p e r s o n b e v e r a g e s e r v e r

b a r t e n d e r m a i t r e d d e l i v e r y d r i v e r c o u n t e r p e r s o n

r m a i t r e d d e l i v e r y d r i v e r c o u n t e r p e r s o n b e v e r e

r p e r s o n b e v e r a g e s e r v e r b u s s e r d e l i v e r y d r i v e r

i v e r c o u n t e r p e r s o n b e v e r a g e s e r v e r w a i t p e r s o n

r p e r s o n b a r t e n d e r m a i t r e d d e l i v e r y d r i v e r

b a r t e n d e r m a i t r e d d e l i v e r y d r i v e r c o u n t e r p e r s o n


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If you are an employer of an

employee who receives tipincome, this guide is for you.

The Internal Revenue Service (IRS) began its Tip Rate

Determination/Education Program (TRD/EP) in October 1993

for businesses where tip income is customary. The objectiveof the Program has been to improve and ensure compliance

by employers and employees with statutory provisions

relating to tip income.


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The Program o Tip Reporting

What tip reporting options are

available?

Tip Rate Determination Agreement

(TRDA)

Tip Reporting Alternative Commit-

ment (TRAC)

Institute your own reporting system

to comply with the tax law.

Under the Tip Rate Determination/

Education Program (TRD/EP), the

employer may enter into a TRDA or a

TRAC arrangement, depending on the

specic business. The IRS will assist

applicants in understanding and meet-

ing the requirements or participation.

The next pages show how these two

arrangements dier.

How does the program beneft my

employees?

There are a number o reasons why an

employee should report all o his/her tip

income:

Increased income may improvenancial approval when applying ormortgage, car, and other loans

Increased social security and Medi-care benets (the more you pay, the

greater the benets)

Increased unemployment compensa-tion benets

Increased employee pension, annuity,or 401(k) participation (i applicable)

Increased workers' compensationbenets, should your employees get

hurt on the job


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How To Get Your Program Underway

How To Apply

To enter into one o the arrangements,

you may call 1800894933 or the

IRS Stakeholder Liaison Field ofce in

your area. A Stakeholder Liaison can

assist you with more inormation about

the Tip Program. You may also obtain

inormation by sending an email [email protected].

Who Should Apply

Currently, the IRS is oering participa-

tion in TRD/EP to employers in the ood

and beverage, hairstyling , and gaming

(casino) industries. There are now new

agreements to accommodate everytipping industry.

All employers with establishments

where tipping is customary should

review their operations. Then, i it is

determined that there is or has been

an underreporting o tips, the employer

may apply or one o the two arrange-

ments (depending on their specifcbusiness) under the TRD/EP TRDA,

TRAC or TRDA.

Note: Employers currently under a

TRDA, and wishing to switch to a

TRAC, must frst terminate their TRDA.

When To Apply

An employer may apply or one o the

two arrangements, depending on his/

her specifc business, at any time. The

eective date o the arrangement is

determined by receipt and handling o

the employers application.

TRDA is eective as o the date the IRS

Employment Tax Territory Manager

signs the arrangement.

TRAC is generally eective as o the

frst day o the quarter ollowing the

date the Stakeholder Liaison Area Man-

ager signs the agreement.

3
http:///reader/full/[email protected]:///reader/full/[email protected]


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TRDA vs. TRAC (how they dier)

TRDA TRAC

TRDA requires the IRS to work with

the establishment to arrive at a tip

rate or the establishment's various

occupations.

TRAC does not require that a tip rate

be established but it does require the

employer to:

establish a procedure where a directlytipped employee is provided (no less than

monthly) a written statement o charged

tips attributed to the employee.

implement a procedure or the employ-ees to veriy or correct any statement o

attributed tips.

adopt a method where an indirectlytipped employee reports his or her tips

(no less than monthly). This could in-clude a statement prepared by the em-

ployer and veried or corrected by the

employee.

establish a procedure where a writtenstatement is prepared and processed (no

less than monthly) refecting all cash tips

attributable to sales o the directlytipped

employee.

TRDA requires the employee to enter TRAC does not require an agreement be

into a Tipped Employee Participation tween the employee and the employer.

Agreement (TEPA) with the employer.

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TRDA TRAC

TRDA requires the employer to get 7% TRAC aects all (100%) employees.

o the employees to sign TEPAs and

report at or above the determined rate.

TRDA provides that i employees ail toreport at or above the determined rate,

the employer will provide the names

o those employees, their social security

numbers, job classication, sales, hours

worked, and amount o tips reported.

TRAC provides that i the employeeso an establishment collectively

underreport their tip income, tip

examinations may occur but only or

those employees that underreport.

TRDA has no specic education TRAC includes a commitment by the

requirement. employer to educate and reeducatequarterly all directly and indirectly

tipped employees and new hires o their

statutory requirement to report

all tips to their employer.

TRDA participation assures the em TRAC includes the same rule.

ployer that prior periods will not be

examined as long as participantscomply with the requirements under

the agreement.


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Example o a TRAC Statement

Use the ollowing exampleto help you develop yourstatement or your specicbusiness, and provide a copy

to your employees. (The ol-lowing example is designed

specically or employeesin the ood and beverageindustry.) A TRACstatement is given to an

employee showing tipsattributed to him/her. This

example not only ullls thestatement required or chargedtips but also or cash tipreporting and or indirectlytipped employee reporting.


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Employer Portion

Employee Name: Mark Doe

Employee Address: 13 Main Street

City, State, Zip: Any Town, USA 134

Employee SSN: 000000000

Job Category: Food ServerEstablishment Name: ABC Bar & Grill

Employer EIN: 000000000

Report Period: 01/01/0001/31/00

Gross Sales $ ,000.

Charged Sales w/Tips $ ,000.

Charged Tips $ 80.

Charged Tip Rate 14%

Sales Subject to Cash Tips $ 4,000.

Employee Portion

Cash Tips $ 0.

Cash Tip Rate 13%

Tips Shared w/Others

Name: Job Category:Amount:

Johnny Noname Busser $ 10.Total (10.)

Tips Received rom Others

Name: Job Category: Amount:

Susie Cue Cocktail $ 100.

Total 100.

Net tips kept and reportable: $ 780

Employee Signature: Date:

Employer flls out top

portion.

Gross Sales: only includeood & drink amount. Donot include tax, tip, ornonood/drink items.

Charged Sales: includecharged sales that showa tip on ood & drinkamounts only. Do notinclude tax, tip, or non-ood/drink items.(A charged sale with no tipis included as a cash sale.)

title

Employee flls out

bottom portion.

An indirectlytippedemployee would onlyreceive (rom the employer)the title portion ostatement lled out, unlessemployer captured tips

shared w/ others inorma-tion rom the directlytippedemployees TRACStatement and showed it astips received rom others.

Employee signs statementand gives a copy toemployer, retaining a copyor his/her records. This

statement would satisyemployers requirementunder the TRAC arrange-ment and the employeesrequirement under the law.

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The following is a list of IRS publicationsand forms relating to tip incomereporting that can be downloaded fromthe IRS Web site at www.irs.ustreas.govand can be ordered through the IRS by

dialing 100293676. (TTY/TDD equip-ment access, dial 100294059).

Pub 505 Tax Withholding and Estimated Tax

Pub 531 Reporting Tip Income

Pub 1244 Employees Daily Record of Tips and

Report to Employer. This publication includes Form

4070, Employees Report of Tips to Employer, and

Form 4070A, Employees Daily Record of Tips.

Form 941 Employers Quarterly Federal Tax Return

Form 1040ES Estimated Tax for Individuals

Form 4137 Social Security and Medicare

Tax on Unreported Tip Income

Form 8027 Employers Annual Information Return

of Tip Income and Allocated TipsForm W-2 Wage and Tax Statement; and separate

Instructions for Forms W-2 and W-3


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a i t p e r s o n b u s s e r b a r t e n d e r m a i t r e d d e l i v e r y d r i

r t e n d e r m a i t r e d d e l i v e r y d r i v e r c o u n t e r p e r s o n

u n t e r p e r s o n b e v e r a g e s e r v e r b u s s e r d e l i v e r y d r i v

i v e r c o u n t e r p e r s o n b e v e r a g e s e r v e r w a i t p e r s o n

r s o n b e v e r a g e s e r v e r b a r t e n d e r m a i t r e d d e l i v e

r a g e b u s s e r d e l i v e r y d r i v e r w a i t p e r s o n b u s s e r

v e r a g e c o u n t e r p e r s o n w a i t p e r s o n b u s s e r b a r t e n d

r v e r m a i t r e d d e l i v e r y d r i v e r c o u n t

a i t p eDepartment of the Treasury

Internal Revenue Service b a r t e n d e r m a i t r e d d e l i v e r y d r

w w w . i r s . g o v

Publication 3144 (Rev. 8 2006)

s s e r Catalog Number 26288G m a i t r e d d e l i v e r y d r i v e r c o u n t

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