A Tip Reporting Alternative Commitment between a food and beverage employer and the IRS. Under a TRAC, the employer agrees to educate employees on tip reporting in exchange for IRS protection from certain audit assessments.
Why TRAC Agreement matters for employers
A TRAC agreement establishes a voluntary compliance framework for tip reporting between the IRS and the employer. Under a TRAC, the employer agrees to educate employees about their obligation to report all tips, to establish a mechanism for employees to report tips (such as tip log sheets), and to report the sum of charged and reported cash tips on Form 8027. In return, the IRS agrees not to assess the employer for FICA taxes on unreported tips unless audited.
TRACs are particularly beneficial for restaurants and bars where tip underreporting is common. An active TRAC agreement with a documented tip reporting education program reduces IRS examination risk and demonstrates good-faith compliance. BEG advises hospitality clients on TRAC agreements as part of managed payroll setup.
How BEG handles TRAC Agreement for clients
BEG Managed Payroll handles TRAC Agreement as part of a fully managed payroll service at $25-$45 per employee per month. Clients do not need to track compliance rules, filing deadlines, or calculation methods related to TRAC Agreement on their own. Everything is included. Learn about BEG Managed Payroll.
Frequently asked questions
Do employers have to manage TRAC Agreement themselves?
No. A managed payroll provider handles TRAC Agreement as part of full-service payroll. BEG manages this for clients at $25-$45 PEPM with no system migration required.
What happens if TRAC Agreement is handled incorrectly?
Errors related to TRAC Agreement can trigger IRS penalties, state agency assessments, or employee disputes. Catching and correcting errors before filing is far less costly than after-the-fact corrections.
How does BEG handle TRAC Agreement for managed payroll clients?
BEG tracks, calculates, and remits everything related to TRAC Agreement as part of fully managed payroll. Clients do not need to monitor compliance -- that is included in the service at $25-$45 PEPM.
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About the author
Anthony Moretti is VP of Sales at Business Executive Group, where he builds BEG's managed payroll and HR service verticals for employers across Dallas-Fort Worth and nationwide. He writes the BEG Payroll Glossary to give employers plain-English answers on payroll and compliance.
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