The Internal Revenue Service released a publication further explaining the Attributed Tip Income Program (ATIP), a voluntary alternative tip reporting program for the food and beverage industry. For calendar year 2007 only, employers are allowed until June 30,2007 (rather than Feb. 28, 2007 when they timely filed Form 8027 information return) to begin the tip attribution process and make an election to participate in ATIP. As long as employers notify IRS that they would like to participate in the program by filing Form 8027, the safe-harbor protection will begin the first payroll period that the employer attributes tips based on the prescribed formula.

Publication 1461 explains that under ATIP, the amount of tips that must be reported by the restaurant is determined under a formula based on the restaurant’s credit card sales. The employer determines a method for attributing the tips among all tipped employees and attributes tips to the employees at least monthly. The method should be fairly close to the actual distribution of the tips among employees, including tip-outs and amounts passed along to employees who are not directly tipped. The amount attributed to each participating employee is treated as wages for purposes of employment taxes paid by the employer.

This method relieves some accounting burdens for employers tracking each employee tip collection. Nonparticipating employees must still report the amount of tips they actually receive to their employer, and the employers must treat the reported amount of tips as wages. Employees must sign participation agreements. If you are interested in electing to participate in this program, please consult with your CPA or tax professional to prepare appropriate filings and participation agreement.