Excite Tax's answer for Utah restaurants: the IRC §45B FICA tip credit is claimed on Form 8846, so record tips by employee; large food or beverage employers also file Form 8027.
Excite Tax's short version: post every day's point-of-sale report, split sales into food and beverage, hold sales tax, Utah's county restaurant tax and card tips as money owed rather than income, and run tips through payroll by employee. The books must show gross income, deductions and credits, and for a restaurant one of those credits is worth tracking from day one. The account list is below.
A federal credit under IRC §45B for the employer's social security and Medicare tax on tips, worth 7.65% of creditable tips and claimed on Form 8846 as part of the general business credit. Tips that only bring cash pay up to $5.15 an hour don't count. The worked example shows the arithmetic.
Because the credit is figured for each employee, month by month, and payroll can only withhold on tips it knows about. Employees report tips of $20 or more in a month by the 10th of the next month; a single total for the whole staff can't be split back out later.
A large food or beverage establishment: tipping is customary and the employer normally had more than 10 employees on a typical business day in the year before. Counter-service places are out: a fast-food operation is not a food or beverage operation for this test. Details are below.
No. An 18% charge added for parties of six or more is a service charge, paid as wages, so it is sales revenue first and payroll second, and it earns no tip credit. In Utah it is also taxable: required gratuities are subject to both sales tax and restaurant tax.
A restaurant's chart of accounts differs from a shop's in three places: money collected for someone else, tips, and the cost of food and drink. Excite Tax's advice is to give each of those its own line, because each ends up on a different return.
Accounts a restaurant needs beyond the usual small-business list
| Account | Type | What goes in it |
|---|---|---|
| Food sales | Income | Food from the point-of-sale report, before discounts |
| Beverage sales (with alcohol on its own line where it is served) | Income | Drinks, kept apart so beverage cost can be measured against them |
| Service charges | Income | Automatic gratuities and banquet charges, which are paid out as wages, not tips |
| Discounts and comps | Contra-income | Meals given away or marked down, so gross sales still match the register |
| Sales tax payable | Liability | Tax collected, owed to the Utah State Tax Commission |
| Restaurant tax payable | Liability | The county restaurant tax, kept apart from sales tax because it goes on its own return |
| Tips payable | Liability | Card tips collected for staff and not yet paid out |
| Payroll liabilities | Liability | Withholding and the employer's share of payroll taxes, including tax on reported tips |
| Food cost and beverage cost | Cost of goods sold | Purchases from suppliers, split the same way as sales |
| Card processing and delivery-app fees | Expense | Fees taken out of deposits and payouts, recorded gross rather than netted |
The chart of accounts guide covers the rest of the list. The split that matters most is food against beverage: once both sales and cost are split the same way, food cost and beverage cost can each be read as a share of their own sales every month.
Excite Tax's rule for restaurants: one journal entry per business day, built from the register's end-of-day report, never from the bank deposit. Card deposits arrive net of fees and a day or more late, and delivery-app payouts arrive net of commissions, so posting deposits as sales understates revenue and hides the fees.
Then reconcile the clearing account and the bank account every month; bank reconciliation explains the method, and the month-end close checklist puts it in order.
Card tips are never restaurant income. They sit in tips payable until paid out, usually in the next payroll, and the payroll record is what turns them into reported tip income. Cash tips never touch the register, which is why the employee's own report matters.
Employees keep a daily record of cash tips, card tips paid by the employer, noncash tips, and tips paid out to others with their names. They report each month's tips by the 10th of the next month, and no single statement can cover more than 1 calendar month. Tips of less than $20 in a month from one job are not reported to that employer.
The report is what lets the employer withhold income tax and social security and Medicare taxes on tips, and the employer then owes its own 6.2% social security and 1.45% Medicare on those tips too. In a tip pool, each employee reports only the tips received and kept, including tips received from other employees, so a busser's share shows up on the busser's record, not the server's.
The IRS test is who decides: a tip is paid free from compulsion, in an amount the customer decides, not set by employer policy. So an 18% charge added for parties of six or more is a service charge, paid as wages. In the books it is service-charge revenue, and when it reaches the server it is regular wages on the payroll register, not a tip, so it earns no tip credit.
IRC §45B gives food and beverage employers a credit for the employer's share of payroll tax on tips, but only for tips for providing, delivering or serving food or beverages where tipping is customary. The credit is claimed on Form 8846, in four steps:
That hourly figure is not Utah's minimum wage or today's federal one: it is the federal minimum wage in effect on January 1, 2007, fixed in the statute for food and beverage employers. An employee paid at least that much in cash wages has nothing to subtract, so every reported tip counts.
The IRS's own example: a server worked 100 hours in October 2025, received $450 in tips and was paid $375 in cash wages at $3.75 an hour. Excite Tax's arithmetic, with the last line added:
Form 8846's October 2025 example, taken one step further at 7.65%
| Step | Amount |
|---|---|
| Tips reported for the month | $450 |
| Cash wages paid, before tips | $375 |
| Wages at $5.15 an hour for the same hours | $515 |
| Tips that only made up the difference, not creditable | $140 |
| Creditable tips | $310 |
| Credit for the month | $310 times 0.0765 = $23.72 |
Now take a bartender paid above $5.15 an hour in cash wages who reports $2,000 of tips in the same month. There is nothing to subtract, so the whole $2,000 is creditable and the month's credit is $153 at 7.65%.
Neither figure can be rebuilt from a staff-wide tip total. Each needs that employee's hours, cash wages and reported tips for the month, which is exactly what a payroll register kept by employee holds. That is the whole bookkeeping case for recording tips by employee.
Partnerships and S corporations must file Form 8846 and report the credit on Schedule K; other filers report it on Form 3800, Part III, line 4f. A year that was missed is not lost: the credit can be claimed any time within 3 years from the return's due date, on the original or an amended return. An employer can also elect not to take the credit for a year.
The credit is not a deduction on top of the payroll tax. The deduction for employer social security and Medicare taxes is reduced by the amount of the credit, so the books keep the payroll-tax expense whole and the return preparer makes the reduction.
A large food or beverage establishment files an annual information return of receipts and tips. The size test uses last year's staffing: take half the employee hours in the busiest month and in the slowest month, divide each by the days open, and add; more than 80 hours means the test is met.
Who counts is broad: every employee at the food or beverage operations counts, not just servers, fast-food staff do not, and a 50% owner of a corporation is left out. Once the test is met, each operation where tipping is customary files its own Form 8027, even a small one.
For calendar year 2025 the return was due March 2, 2026 on paper, or March 31, 2026 if filed electronically. The records behind it are kept for 3 years after the due date.
The same return tests whether staff reported enough tips: if reported tips for a payroll period are less than 8% of gross receipts, the shortfall is allocated to directly tipped employees. Carryout sales and sales with a service charge of 10% or more are left out of the receipts it is measured against, which is another reason to keep takeout and service charges on their own lines.
The allocation in the Form 8027 instructions' example
| Step | Amount |
|---|---|
| Gross receipts for the payroll period | $100,000 |
| 8% of gross receipts | $8,000 |
| Tips reported by all employees | $6,200 |
| Allocated among employees who reported less than their share | $1,800 |
Allocated tips are not payroll: they go in box 8 of Form W-2, are not subject to withholding, and stay out of boxes 1, 3, 5 and 7. They create no expense or liability in the restaurant's books; they only show up on the year-end wage forms.
For 2025 through 2028, employees in tipped occupations may deduct up to $25,000 a year of qualified tips. The employee's deduction rests on the employer's paperwork: employers must report certain cash tips and each recipient's occupation on information returns and employee statements. A payroll register that already carries tips and job title by employee is ready for it; one that lumps tips together is not.
Utah adds a county restaurant tax of up to 1.0% on top of sales tax. It applies to a retail establishment that gets more than 50 percent of its revenue from prepared food for immediate consumption, and it is reported on TC-62F, due when the sales and use tax return is due. Sales tax returns themselves are due the last day of the month after the filing period.
Required gratuities cost more than a line on the bill: they are subject to both sales tax and restaurant tax. A tip line escapes that only when the front of the bill says, in the same size font, that the charge is voluntary and may be changed by the customer. Check the receipt template before the point-of-sale system is set up, because it decides what the register taxes.
Two more Utah rules shape the books. Grocery food sold by a restaurant gets the lower sales tax rate only if it is listed separately on the receipt, so a separate register key is worth it. And a restaurant pays sales or use tax on advertising items, non-disposable utensils and supplies, and ingredients for free employee meals, so staff-meal ingredients are not tax-free inventory.
Tips withheld on also flow into Utah withholding, filed on the TC-941E each quarter. An employer without a Utah withholding account starts at Utah withholding registration.
If a payroll return already went out with the tips wrong, fixing a payroll tax mistake covers the correction, and payroll coordination covers how the payroll provider and the books stay in step.
Hand the books over when keeping them costs more hours than the business can spare, or when they stop agreeing with the bank.
Forms W-2 and the Utah withholding returns are filed by your payroll provider or by you; payroll filing is not a service Excite Tax offers.
Excite Tax keeps these books; the return they feed is reviewed and signed by a licensed CPA at TBD CPA LLC.
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