Payroll Tips Allocation

Applies to: Microsoft Dynamics GP 2015

TechKnowledge Content

Allocated Tips Calculation

Dynamics calculates Allocated Tips using the Gross Receipts Method. According to the IRS: Gross receipts method.

If no good -faith agreement (as explained below) applies to the payroll period, you must allocate the difference between total tips reported and 8% of gross receipts using the following steps:

1. Multiply the establishment's gross receipts (other than nonallocable receipts) for the payroll period by 8% (.08) or the lower rate.

2. Subtract from the amount figured in step 1 the total amount of tips reported by employees who were tipped indirectly for the payroll period. This difference is the directly tipped employees' total share of 8% (or the lower rate) of the gross receipts of the establishment.

Indirectly tipped employees do not receive tips directly from customers.

Examples are employees who bus tables, service bartenders, and cooks.

Directly tipped employees, such as waiters, waitresses, and bartenders, receive tips directly from customers.

Employees, such as maitre d's, who receive tips directly from customers and indirectly through tip splitting or pooling, are treated as directly tipped employees.

3. For each employee who is tipped directly, multiply the result in step 2 by the following fraction:

a.numerator (top number) is the amount of the establishment's gross receipts

attributable to the employee

b.denominator (bottom number) is the gross receipts attributable to all directly tipped

employees.

The result is each directly tipped employee's share of 8% (or the lower rate) of the gross receipts for the payroll period.

4. From each directly tipped employee's share of 8% or the lower rate of the gross receipts figured in step 3, subtract the tips the employee reported for the payroll period. The result is each directly tipped employee's shortfall (if any) for the period.

5. From the amount figured in step 1 subtract the total tips reported by both directly and indirectly tipped employees. The result is the amount that has to be allocated among the directly tipped employees who had a shortfall for the payroll period as figured in step 4.

6. For each directly tipped employee who had a shortfall for the period as figured in step 4, multiply the amount in step 5 by the following fraction:

a.numerator is the employee's shortfall (figured in step 4),

b.denominator is the total shortfall of all directly tipped employees.

The result is the amount of allocated tips for each directly tipped employee.

Example. A large food or beverage establishment has gross receipts for a payroll period of \$100,000 and has tips reported for the payroll period of \$6,200.

Directly tipped employees reported \$5,700, while indirectly tipped employees reported \$500.

Because employee C has no shortfall, C gets no allocation. Directly tipped Gross receipts Tips employees for payroll period reported

A \$18,000 \$1,080

B 16,000 880

C 23,000 1,810

D 17,000 800

E 12,000 450

F 14,000 680

TOTAL \$100,000 \$5,700

1. \$100,000 (gross receipts) X .08 = \$8,000.

2. \$8,000 - \$500 (tips reported by indirectly tipped employees) = \$7,500.

3. Directly tipped Employee's tipped employee's share Gross receipts share of employees of 8% of the gross ratio 8% of gross

A \$7,500..... X 18,000/100,000... = \$1,350

B \$7,500..... X 16,000/100,000... = 1,200

C \$7,500..... X 23,000/100,000... = 1,725

D \$7,500..... X 17,000/100,000... = 1,275

E \$7,500..... X 12,000/100,000... = 900

F \$7,500..... X 14,000/100,000... = 1,050

TOTAL \$7,500

4. Directly Employee's tipped share of Tips Employee employees 8% of the gross reported shortfall A \$1,350..... \$1,080..... = \$270

B 1,200..... 880..... = 320

C 1,725..... 1,810..... = -85)

D 1,275..... 800..... = 475

E 900..... 450..... = 450

F 1,050..... 680..... = 370

Total shortfall \$1,885

5. \$8,000 less \$6,200 (total tips reported) = \$1,800 (amount allocable among employees who had a shortfall)

6. Shortfall Allocable Shortfall Amount of employees amount ratio allocation

A \$1,800..... X 270/1,885... = \$258

B 1,800..... X 320/1,885... = 306

D 1,800..... X 475/1,885... = 454

E 1,800..... X 450/1,885... = 430

F 1,800..... X 370/1,885... = 353

Please note: This was taken directly from an IRS document. If you have any question consult your accountant or the IRS.