With respect to each establishment, the employer shall choose the method described in either paragraph (d)(1)(ii)(A) or paragraph (d)(1)(ii)(B) of this section for a calendar year and apply such method consistently in making all allocations required by the preceding sentence. If an employee is employed in more than one of an employer's food or beverage operations, such employee may specify what portion of his or her reported tips are attributable to a given operation when reporting tips to the employer under section 6053(a). In the absence of any specification by the employee, the employer shall allocate the amount of tips reported by the employee to a given food or beverage operation in a manner similar to that provided above for allocation of tips among payroll periods. The employer shall choose the method described in either paragraph (d)(1)(ii)(A) or paragraph (d)(1)(ii)(B) of this section for a calendar year and apply such method consistently in making all allocations required by the preceding sentence.
Directly tipped employees | Gross receipts for payroll period | Tips 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 |
The allocation computations would be as follows:
Directly tipped employees | Directly tipped share of 8 pct gross | * | Gross receipts ratio | = | Employee share of 8 pct gross |
A | $7,500 | 18,000/100,000 | 1,350 | ||
B | 7,500 | 16,000/100,000 | 1,200 | ||
C | 7,500 | 23,000/100,000 | 1,725 | ||
D | 7,500 | 17,000/100,000 | 1,275 | ||
E | 7,500 | 12,000/100,000 | 900 | ||
F | 7,500 | 14,000/100,000 | 1,050 | ||
Total | 7,500 |
Directly tipped employees | Employee share of 8 pct gross | - | Tips reported | = | Employee shortfall |
A | $1,350 | $1,080 | $270 | ||
B | 1,200 | 880 | 320 | ||
C | 1,725 | 1,810 | |||
D | 1,275 | 800 | 475 | ||
E | 900 | 450 | 450 | ||
F | 1,050 | 680 | 370 | ||
Total shortfall | 1,885 |
Since employee C has no reporting shortfall there is no allocation to C.
Shortfall employees | Allocable amount | * | Shortfall ratio | = | Amount of allocation |
A | $1,800 | 270/1885 | $258 | ||
B | 1,800 | 320/1885 | 306 | ||
D | 1,800 | 475/1885 | 454 | ||
E | 1,800 | 450/1885 | 430 | ||
F | 1,800 | 370/1885 | 353 |
Assume the same facts as in example 1 except that the employer uses employee hours worked to calculate tip allocations.
Directly tipped employees | Hours worked in payroll period | Tips reported |
A | 40 | $1,080 |
B | 35 | 880 |
C | 45 | 1,810 |
D | 40 | 800 |
E | 15 | 450 |
F | 25 | 680 |
Total | 200 | $5,700 |
The allocation computations would be as follows:
Directly tipped employees | Directly tipped share of 8 pct gross | * | Hours worked ratio | = | Employee share of 8 pct gross |
A | $7,500 | 40/200 | $1,500 | ||
B | 7,500 | 35/200 | 1,313 | ||
C | 7,500 | 45/200 | 1,688 | ||
D | 7,500 | 40/200 | 1,500 | ||
E | 7,500 | 15/200 | 563 | ||
F | 7,500 | 25/200 | 938 |
Directly tipped employees | Employee share of 8 pct gross | - | Tips reported | = | Employee shortfall |
A | $1,500 | $1,080 | $420 | ||
B | 1,313 | 880 | 433 | ||
C | 1,688 | 1,810 | |||
D | 1,500 | 800 | 700 | ||
E | 563 | 450 | 113 | ||
F | 938 | 680 | 258 | ||
Total shortfall | $1,924 |
Since employee C has no reporting shortfall there is no allocation to C.
Shortfall employees | Allocable amount | * | Shortfall ratio | = | Amount of allocation |
A | $1,800 | 420/1,924 | $393 | ||
B | 1,800 | 433/1,924 | 405 | ||
D | 1,800 | 700/1,924 | 655 | ||
E | 1,800 | 113/1,924 | 106 | ||
F | 1,800 | 258/1,924 | 241 |
Directly tipped employees | Gross receipts for calendar year | Tips reported |
A | 260,000 | $18,600 |
B | 240,000 | 14,600 |
C | 380,000 | 31,200 |
D | 260,000 | 13,000 |
E | 160,000 | 6,000 |
F | 200,000 | 10,600 |
Total | $1,500,000 | $94,000 |
The allocation computations are as follows:
Directly tipped employees | Directly tipped share of 8 pct. gross | X | Gross receipts ratio | = | Employee share of 8 pct. gross |
A | $104,000 | 260,000/1,500,000 | $18,027 | ||
B | 104,000 | 240,000/1,500,000 | 16,640 | ||
C | 104,000 | 380,000/1,500,000 | 26,347 | ||
D | 104,000 | 260,000/1,500,000 | 18,027 | ||
E | 104,000 | 160,000/1,500,000 | 11,093 | ||
F | 104,000 | 200,000/1,500,000 | 13,867 |
Directly tipped employees | Employee share of 8 pct. gross | - | Tips reported | = | Employee shortfall |
A | 18,027 | 18,600 | |||
B | 16,640 | 14,600 | 2,040 | ||
C | 26,347 | 31,200 | |||
D | 18,027 | 13,000 | 5,027 | ||
E | 11,093 | 6,000 | 5,093 | ||
F | 13,867 | 10,600 | 3,267 | ||
Total shortfall | 15,427 |
Since employees A and C do not have a reporting shortfall there are no allocations to them.
Shortfall employees | Allocable amount | * | Shortfall ratio | = | Amount of allocation |
B | 10,000 | 2,040/15,427 | $1,322 | ||
D | 10,000 | 5,027/15,427 | 3,259 | ||
E | 10,000 | 5,093/15,427 | 3,301 | ||
F | 10,000 | 3,267/15,427 | 2,118 | ||
Total | $10,000 |
Assume the same facts as in example 4 except that the employer has chosen the employee hours worked method of computing tip allocations, the calendar year gross receipts were $1,000,000, and the tips reported for the calendar year were $74,000. Directly tipped employees reported $70,000 while indirectly tipped employees reported $4,000.
Directly tipped employees | Hours worked in the calendar year | Tips reported |
A | 2,000 | $11,800 |
B | 1,750 | 9,800 |
C | 2,250 | 15,100 |
D | 2,000 | 9,000 |
E | 750 | 4,500 |
F | 1,250 | 7,800 |
G | 490 | 3,200 |
H | 510 | 2,800 |
I | 200 | 800 |
J | 1,000 | 5,200 |
Total | 12,200 | $70,000 |
The allocation computations would be as follows:
Directly tipped employees | Directly tipped share of 8 pct. gross | * | Hours worked ratio | = | Employee share of 8 pct. gross |
A | $76,000 | 2,000/12,200 | $12,459 | ||
B | 76,000 | 1,750/12,200 | 10,902 | ||
C | 76,000 | 2,250/12,200 | 14,016 | ||
D | 76,000 | 2,000/12,200 | 12,459 | ||
E | 76,000 | 750/12,200 | 4,672 | ||
F | 76,000 | 1,250/12,200 | 7,787 | ||
G | 76,000 | 490/12,200 | 3,052 | ||
H | 76,000 | 510/12,200 | 3,177 | ||
I | 76,000 | 200/12,200 | 1,246 | ||
J | 76,000 | 1,000/12,200 | 6,230 | ||
Total | $76,000 |
Directly tipped employees | Employee share of 8 pct. gross | - | Tips reported | = | Employee shortfall |
A | 12,459 | 11,800 | $659 | ||
B | 10,902 | 9,800 | 1,102 | ||
C | 14,016 | 15,100 | |||
D | 12,459 | 9,000 | 3,459 | ||
E | 4,672 | 4,500 | 172 | ||
F | 7,787 | 7,800 | |||
G | 3,052 | 3,200 | |||
H | 3,177 | 2,800 | 377 | ||
I | 1,246 | 800 | 446 | ||
J | 6,230 | 5,200 | 1,030 | ||
Total shortfall | $7,245 |
Since employees C, F, and G have no reporting shortfalls, there are no allocations made to them.
Shortfall employees | Allocable amount | * | Shortfall ratio | = | Amount of allocation |
A | $6,000 | 659/7,245 | $546 | ||
B | 6,000 | 1,102/7,245 | 913 | ||
D | 6,000 | 3,459/7,245 | 2,865 | ||
E | 6,000 | 172/7,245 | 142 | ||
H | 6,000 | 377/7,245 | 312 | ||
I | 6,000 | 446/7,245 | 369 | ||
J | 6,000 | 1,030/7,245 | 853 | ||
Total | $6,000 |
For example, the retail values of complimentary hors d'oeuvres served at a bar or a complimentary dessert served to a regular patron of a restaurant would not be included in gross receipts because the receipts of the bar or restaurant would be included in gross receipts as defined in paragraph (j)(1) of this section. The retail value of a complimentary fruit basket placed in a hotel room generally would not be included in gross receipts because tipping for the provision of such items is not customary. The retail value of complimentary drinks served to customers in a gambling casino would be included in gross receipts because tipping for the provision of such items is customary, the gambling casino is an activity engaged in for profit, and the gambling receipts of the casino would not be included in gross receipts as defined in paragraph (j)(1) of this section except for this subparagraph.
26 C.F.R. §31.6053-3
96 Stat. 603, 26 U.S.C. 6053(c) ; 68A Stat. 917, 26 U.S.C. 7805