The basic idea behind allocated tips is that if you work in a restaurant, cocktail lounge, or similar establishment, you deserve 8% of the business’s food and drink sales. Allocated tips make up the difference between the tips you reported to your employer and that 8% of sales. You will only receive allocated tips if you work in an establishment required to allocate tips, and even some that do have a federally approved rate lower than 8%. Also if your reported tips amounted to more than 8% of food and drink sales don’t expect any allocated tips. You must report to the IRS all the tips you received over the course of the year, including allocated tips. Allocated tips will appear in Box 8 of your W-2 [Wage and Tax Statement], marked “allocated tips.” If this is the case, you must file Form 4137 [Social Security and Medicare Tax on Unreported Tip Income] to report your income from allocated tips and pay taxes on it.