AR 215-1 - Soldier Support Institute - U.S. Army

adequate records of tips received. IRS Publication 1244 and IRS Form 4070 have been developed for this purpose and
may be used to report tip income to the employing NAFI/entity. The employee portions of IRS Pub 1244 are generally
sufficient to prove tip income in the event of a tax dispute. Otherwise, the amount of tip income will be determined by
the IRS.
C–5. Payroll procedures
The payroll office is responsible for the following functions:
a. Including all tips not received immediately by employees in their next paycheck. (Income from tips is considered
income to the individual and is not subject to withholding.)
b. Including all distributions from service charges in the employee’s next paycheck. (Income from service charges is
considered income to the employing NAFI/entity and is subject to the same Federal, State, and Social Security (FICA)
tax withholding requirements as any other income. The distribution paid to employees therefore is the net entitlement
after withholding.)
c. Listing payments of gratuities of all types, whether tips or service charge distributions, as “other income” on
employee pay statements.
d. Reporting the total amount of gratuities paid to each employee in each calendar year to the IRS, in accordance
with applicable IRS rules.
C–6. Allocation criteria
Food and beverage programs that are not exempted from tip allocation requirements under the provisions of paragraph
C–7 allocate tips among all directly tipped employees whenever the total amount of tips reported does not equal or
exceed 8 percent of gross food and beverage sales. If the amount of tips reported equals or exceeds 8 percent, no
allocation is required.
C–7. Exemptions
a. The types of food or beverage programs that are generally exempt from tip allocation requirements are—
(1) Cafeterias.
(2) Snack bars without table service.
(3) Buffets.
(4) Party contracts with a service charge of 10 percent or more.
(5) Any other food or beverage service with a service charge of 10 percent or more.
b. The following types of programs that are automatically exempted are—
(1) Those that do not allow tipping.
(2) Those with tip rates of less than 2 percent of gross sales.
C–8. Requests for lower tip allocation rates
Managers of programs that consistently generate tips of more than 2 percent but less than 8 percent of gross sales may
apply to the IRS to reduce the allocation rate from 8 percent to a level consistent with actual tips received. To apply—
a. Determine the average tip rate based on charge receipts and other available data.
b. Request a reduction in the tip allocation rate by letter addressed to the district director of the servicing IRS
district office, with the following supporting information, as a minimum.
(1) Actual tip rate and supporting data.
(2) Description of the food or beverage service program.
(3) Menu prices.
(4) Location.
(5) A description of the food or beverage operation that clearly indicates the level of self-service activities.
(6) Days and hours of operation.
(7) Method of payment.
(8) Allocation rate requested.
(9) Copies of IRS Form 8027 for the last 3 years.
c. The IRS district director will approve or disapprove the request or require additional information. Approval of
request will state the allocation rate and the period for which it is valid.
d. A single application may be filed in the case of two or more programs on the same garrison that experience
similar tip rates.
C–9. Allocation methods
Tip allocation may be based on either of the methods specified in this paragraph. The method should be implemented
at the beginning of the calendar year and not changed during the remainder of the year.
182 AR 215–1 • 31 July 2007