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Pay and report tips

by Intuit•2• Updated 4 weeks ago

Learn how to report your employee’s earned tips in QuickBooks Online Payroll and QuickBooks Desktop Payroll for tax purposes.

If your employees receive tips from customers, you’re required to track and withhold taxes from those tips. If the tip is less than $20 per month, tips aren’t subject to federal taxes. Visit the CRA website to learn more.

Follow the steps below to report tips on paycheques and payroll forms.

Step 1: Determine what type of tips your employees received

Controlled tips are tips and gratuities that at some point have come under control or management of the employer before being paid out to the employees.

Step 2: Set up a payroll item for tips in QuickBooks

  1. Go to All apps A bunch of numbers and letters on a tile wall., select Payroll, then select Employees (Take me there).
  2. Select your employee.
  3. From the Additional pay types section, select Add.
    Note: You'll need to set a Base pay before you can add any additional pay types.
  4. From the Pay types ▼ dropdown, select Controlled Tips.
  5. Select Save.

Step 1: Create an additional payroll item for taxable tip amount

Use this payroll item to report all the tips the employee received.

  1. Select Lists, then select Payroll Item List.
  2. Select the Payroll Item ▼ dropdown, then select New.
  3. Select Addition, then select Next.
  4. Enter the name of the item (for example, Tips In), then select Next.
  5. Select the account where you want to track the item, then select Next twice.
  6. In the Tax tracking type window, select the tax type.
  7. Select Next three times, then select Finish.

Step 2: Create a payroll deduction item for tips kept by the employee

Use this payroll item to take away the tips that the employee already received.

  1. Select Lists, then select Payroll Item List.
  2. Select the Payroll Item ▼ dropdown, then select New.
  3. Select Deduction, then select Next.
  4. Enter the name of the item (for example, Tips Out), then select Next.
  5. In the Liability account ▼ dropdown, select the same account you had in the Expense account field for Addition item (tips in), then select Next.
  6. In the Tax tracking type window, select None.
  7. Select Next twice.
  8. Select net pay in the Gross vs. net window.
  9. Select Next, then select Finish.

Step 3: Report tips on paycheques and payroll forms

As you run your scheduled payroll, enter an amount for tips.

Run your scheduled or unscheduled payroll. In the paycheque detail, add the Addition item and the amount under the Other Payroll Items section.

If the employee receives the tips in cash, you need to enter the deduction item in the Other Payroll Items section. This is to take the amount out so they don’t get paid for the cash tips again.