While the IRS requires tipped employees to provide this report once a month, as the employer, you will need a report for every payroll period, otherwise you cannot correctly report the employees’ total wages, nor can you withhold the proper taxes (and pay your share of FICA tax). You can use the IRS created Form 4070A “Employee’s Daily Record of Tips” or use another form that includes:
- Employee’s name, address, and social security number
- Employer’s name
- Period covered and date reported
- Total amount of tips received by the employee
- Employee’s signature
You need to withhold income and FICA tax from each paycheck and report each employee’s tips to the IRS. If you use a payroll service to process your payroll, you will need to report the total tips reported for the payroll period as submitted to you by that employee, along with the tipped employee’s hours and hourly rate. This information will also be included on the Employer’s Quarterly Payroll Tax Return (Form 941) that you or your payroll service will file. At the end of the year, you will also need to account for each employee’s total wages (including tips) on their W-2. In certain cases, you may need to “allocate” additional wages for an employee if the employee has failed to report “sufficient” tip income.
As a practical matter you cannot force your employees to report all their tip income. While you are legally responsible for distributing Form 4070A (or an acceptable alternative), the business is only liable for its share of the FICA taxes on unreported tips (and only if the IRS is successful at substantiating unreported tip income). You should take a proactive role to get employees to accurately report their tips.
You are required to file IRS Form 8027 at the end of each year. It summarizes the business’ total sales, charged sales, charged tips, and total reported tips. If tipping is customary in your restaurant, food and beverages are served, and more than 10 employees are normally employed, then you must submit the “Employer’s Annual Information Return of Tip Income and Allocated Tips” on an annual basis.