Payroll taxes, tip reporting and year-end filings for Massachusetts restaurants
The tax side of restaurant payroll: how tips are reported and taxed, what the 2025 federal tip and overtime deduction changes, and the filing calendar.
General information about Massachusetts and federal rules, checked against the official sources linked under each answer on September 24, 2026. It is not legal or tax advice.
Any employee who receives $20 or more in cash and charged tips in a month must report them to the employer by the 10th of the following month. If the 10th falls on a weekend or holiday, the report is due the next business day.
The report covers tips from customers, card tips paid out to the employee and tips received from a tip pool. If the restaurant has no electronic tip-reporting system, the employee gives a signed, dated written statement with their name, address, Social Security number, the employer's name and the total tips for the period. The old IRS Form 4070 is now a historical form, so a similar written or electronic report does the job.
Yes. The employer withholds federal income tax and the employee's Social Security and Medicare on reported tips, taking the money from the employee's regular wages or other funds the employee provides, never from the tips themselves. The employer also pays its own matching Social Security and Medicare on those tips.
Tips count as paid on the day the employee reports them. Reported tips of $20 or more a month also count as wages for federal unemployment tax (FUTA). Massachusetts treats reported tips as wages for state withholding too, under the same $20-a-month, 10th-of-the-month rule.
If the employer still can't collect the employee's share by the 10th of the month after the tip report, it stops trying. Social Security and Medicare are withheld first, then income tax, and whatever could not be collected is shown on the W-2 in box 12 with codes A and B.
The employer takes the uncollected amount as a negative adjustment on Form 941, line 9, and the employee pays it with their own tax return.
You file Form 8027 if you run a "large food or beverage establishment": food or drink served for on-premises consumption, tipping is customary, and the employer normally had more than 10 employees on a typical business day in the prior year. File a separate Form 8027 for each tipped location.
Tipping is generally not considered customary in a cafeteria-style operation, or where at least 95% of sales (other than carryout) carry a service charge of 10% or more. The general due date is the last day of February on paper, or March 31 if filed electronically; for tax year 2025 the IRS set March 2 and March 31, 2026. Check IRS.gov/Form8027 for the 2026 dates when the new instructions are published. Anyone filing 10 or more information returns in total, W-2s included, must file electronically.
When total reported tips at a large food or beverage establishment are less than 8% of gross food and beverage sales, the employer allocates the shortfall among directly tipped employees and shows it in W-2 box 8. No tax is withheld on allocated tips, and the employee reports them on their own return.
Indirectly tipped staff, such as bussers and cooks, do not receive allocations. The 8% figure is used only for allocation: employees must still report every tip they actually receive. Establishments with fewer than the equivalent of 25 full-time employees may allocate by hours worked instead of gross receipts.
Yes. Food and beverage employers where tipping is customary can claim a credit on Form 8846 for the employer's 7.65% Social Security and Medicare paid on tips. Tips needed to bring an employee's pay up to $5.15 an hour, the federal minimum wage on January 1, 2007, don't count toward it.
In the IRS example, a server works 100 hours at $3.75 an hour and receives $450 in tips. Pay at $5.15 would have been $515, which is $140 more than the $375 paid, so $310 of the tips count toward the credit. It is a general business credit claimed on the restaurant's income tax return, so talk to your tax adviser about how it fits your return.
For tax years 2025 through 2028, workers in occupations the IRS lists as customarily receiving tips can deduct up to $25,000 a year of qualified tips from federal taxable income. It phases out above $150,000 of modified adjusted gross income ($300,000 on a joint return). Social Security and Medicare still apply to those tips.
The deduction is available whether or not the worker itemizes. Married couples must file jointly, and the worker needs a valid Social Security number. Qualified tips are voluntary cash or card tips, including tips shared through a tip pool, and they must be reported on a W-2, a 1099 or Form 4137. The final list of tipped occupations, published in April 2026, puts restaurant roles in the 100s series, "Beverage and Food Service".
No. Under the IRS final rules, a mandatory service charge that the customer cannot remove or change is not a qualified tip, even if the restaurant passes all of it to servers, bussers and kitchen staff. Only amounts the customer pays voluntarily count.
Service charges also have their own rules under the Massachusetts Tips Act, covered on the tips and service charges page.
For 2025 through 2028, workers can deduct the premium part of overtime the federal Fair Labor Standards Act requires, meaning the "half" in time and a half. The limit is $12,500 a year ($25,000 on a joint return), with the same $150,000 and $300,000 income phase-out as the tips deduction.
The IRS definition covers only overtime required under section 7 of the FLSA. Overtime is still subject to withholding, Social Security, Medicare and FUTA in the paycheck. How restaurant overtime works is on the overtime and breaks page.
From 2026 Forms W-2, issued in early 2027, employers report cash tips in box 12 with new code TP, qualified overtime in box 12 with new code TT, and each employee's Treasury Tipped Occupation Code in new box 14b. The 2025 forms were a penalty-free transition year; no similar relief has been announced for 2026.
Up to two occupation codes can go in box 14b, or "000" if any tips came from a non-qualifying occupation. The old box 14 becomes box 14a. Forms 1099-NEC and 1099-MISC get matching boxes. Employers must also honor an updated Form W-4 from an employee who wants the deduction reflected in their paychecks now. Confirm with your payroll provider that its 2026 W-2s carry the new codes.
No. The Massachusetts Department of Revenue says the state does not adopt the federal no-tax-on-tips or no-tax-on-overtime deductions, so tips and overtime stay fully taxable for Massachusetts income tax. State withholding on them does not change.
Massachusetts withholds income tax at 5.0% under the 2026 Circular M tables. For 2026, wages above $1,107,750 are also subject to the 4% surtax, so withholding runs at 9% on the part above that threshold.
New employees complete both a federal Form W-4 and a Massachusetts Form M-4. Without the M-4, state withholding runs on defaults.
It depends on how much you withhold in a year: $100 or less annually, $101 to $1,200 quarterly, and $1,201 to $25,000 monthly by the 15th of the following month. Above $25,000, you pay within three business days whenever withholding reaches $500 by the 7th, 15th, 22nd or last day of a month.
For monthly filers, the March, June, September and December payments are due at the end of the following month rather than the 15th. New businesses must file and pay electronically through MassTaxConnect.
Form 941 is filed quarterly by April 30, July 31, October 31 and January 31, so the fourth-quarter 2026 return is due February 1, 2027. You deposit monthly if you reported $50,000 or less in taxes during the lookback period, and semiweekly if you reported more.
For 2026 the lookback period is July 1, 2024 to June 30, 2025. Monthly depositors pay by the 15th of the following month. Semiweekly depositors pay by the following Wednesday for Wednesday to Friday paydays and by the following Friday for Saturday to Tuesday paydays. A new business is a monthly depositor in its first year, and any day liability reaches $100,000 the deposit is due the next business day. All federal deposits are made electronically.
FUTA is 6.0% on the first $7,000 of each employee's wages, reduced by up to a 5.4% credit when state unemployment contributions are paid in full and on time, for a net 0.6%. Massachusetts is not a credit-reduction state for 2025 and does not appear on the Department of Labor's list of potential 2026 credit-reduction states.
FUTA is reported annually on Form 940. The 2026 Form 940 is due February 1, 2027.
For 2026, Social Security tax of 6.2% for the employee and 6.2% for the employer applies to the first $184,500 of wages and tips. Medicare, 1.45% each, has no cap, and employers withhold an extra 0.9% Additional Medicare Tax on an employee's wages above $200,000 in the year, with no employer match.
February 1, 2027, both for giving W-2s to employees and for filing them with the Social Security Administration, because January 31, 2027 is a Sunday. Extensions are granted only in extraordinary circumstances and never extend the date for giving W-2s to employees.
Massachusetts also requires W-2s to be filed with the Department of Revenue. DOR's W-2 page gives January 31, with Form M-3 for paper filers and electronic upload through MassTaxConnect for 50 or more W-2s, while its withholding guide still lists later dates. Use the January date. The year-end payroll checklist walks through the whole close.
For payments made in 2026 and later, file Form 1099-NEC for each non-employee you paid at least $2,000 during the year for services, up from $600. Forms for 2026 payments are due February 1, 2027.
Typical restaurant cases are an unincorporated live musician or DJ, a freelance cleaner, a handyman or an outside bookkeeper. Payments to corporations are generally exempt, except legal fees, and payments made by credit card or through payment apps are reported by the processor on Form 1099-K instead. Be careful before treating anyone who works shifts as a contractor: Massachusetts uses a strict test, covered on the hiring page.
Not at the moment. The credit was authorized only through December 31, 2025, and as of our last check the IRS and Department of Labor pages show no reauthorization. Past lapses have been extended retroactively, but nobody can promise that.
If you keep screening in case of a retroactive extension, the rules have not changed: the pre-screening on Form 8850 is completed on or before the day of the job offer, and the form goes to the state workforce agency within 28 days after the employee starts. More detail is in our WOTC guide.
Your restaurant remains the employer of record and approves payroll and employment decisions. BOHO is not a PEO, a staffing agency, or legal counsel. These answers describe the rules; they don’t decide how they apply to your restaurant. Headcount, entity structure and the exact facts of a shift can change the answer, so confirm anything that affects pay with the agency, an employment attorney or your tax adviser.
