We have many employees who earn a large portion of their income through delivery tips. Some of these employees are enrolled in our Major Medical health insurance. The deductions for this insurance each payroll are calculated by taking the 9.78% federal guideline(changes each year) times their earnings. My issue right now is that Quickbooks has not been including their tip income in the number it is multiplying by the 9.78%, when it should be. It is only using their regular hourly comp. This is an issue because for a lot of these employees, tips are 50% or more of their pay each pay period. SO because of this "glitch", we have been charging the applicable employees well below the 9.78% of earnings we are allowed/intending to.
SO - I would like to know if anyone knows if there is a way to get Quickbooks to include the tips in the deduction calculation. We have the Tips earning item set up as "Reported Tips" for tax tracking purposes. I have been told it needs to stay this way for W2 purposes. I am sure this is why it is not pulling into the calculation......I know if I changed it to "Compensation", it would probably fix the calculation issue, but would screw up things for W2s.
Of course my workaround would be to just manually update the health insurance deductions for the applicable employees to include tips in the calc- there are only a handful really affected by this. Of course that is not ideal so hoping there is a better, automated way.
Thanks in advance!
You can count on me, @jbischoff1214.
You're on the right path in creating a tax-tracking payroll item for your paycheck tips. To track your health insurance deductions, you can create a different payroll item.
After setting up these items, you can add them to the employee paychecks under Other Payroll Items. Just enter the amount for each item in the Rate column.
For more info, please review this article: Report tips in and out of employee paychecks in QuickBooks Desktop Payroll.
Also, yes, you're right. You can use Compensation for the item set up if these were allocated tips.
In case your payroll items on the paychecks won't calculate, you can use this handy resource to resolve it: Fix payroll item issues on paychecks.
You can always post here in the Community if you have follow-up questions about managing your payroll. I'd be glad to help.
The payroll deduction item for the health insurance is already set up in the way you described. And for tax tracking type, I chose "Section 125/Premium Only" as that is what these are. It knows to take the deduction before tax when you choose this.
This does not solve my problem however, as it is still only using hourly comp as the base. And these are NOT allocated tips that would go in box 8 of the W2. They are tips payable directly and individually to individual drivers that we collect every 2 weeks and then pay them out to the employees accordingly. SO they are box 1 items on the W2 - Reported Tips, not allocated.
Any other ideas?
The payroll deduction item is already set up as you described. Except we choose tax tracking type Section 125/Premium Only". It then knows to take the deductions out pre-tax.
This does not solve my problem as it is still using only hourly wages to calculate the amount of the deduction and excluding tips. And these are NOT allocated tips. They are "reported tips" that would be included in box 1. They are paid to individual employees and we just collect them on their behalf and pay them out every 2 weeks.
Any other ideas?
I believe the issue right now is the tax tracking type used for the health insurance. When you choose "125/Premium Only", it does not give you the option to choose what you are using as the base for the 9.78% calculation. I could choose another tax tracking type such as "Other" and tell it to calculate based on gross pay, but then the deduction would not have the correct tax tracking type. There must be a work around for this to both get the health insurance deduction into the correct tax class AND calculate the health deduction on an amount that includes reported tips.
Hello there, @jbischoff1214.
Yes, you're correct. The tax tracking type you use for the health insurance deduction plays a big role in calculating your employee's taxes. It'll determine how the payroll item appears on tax forms. Each type affects on federal forms may vary based on the payroll item.
The 125/Premium Only tax tracking type, is associated with employee deductions and pre-tax contributions to premium only and cafeteria plans. It'll reduce the wages in boxes 1, 3, and 5 on your employee's W-2s. With this, I'd recommend consulting a tax specialist or your accountant to identify which type to use for the health insurance deduction that'll include reported tips.
Additionally, the QuickBooks Desktop (QBDT) Payroll system lets you report tips in and out on employee paychecks. You can refer to this article for the complete details: Report tips in and out on employee paychecks in QuickBooks Desktop Payroll. It contains steps about creating payroll item for taxable tip amount and retained by the employee.
I'm also adding this article to learn more on how the system populates the boxes on the IRS Form W-2: W2 form boxes explained. It also includes the link to the IRS instructions for the said form.
Please know that you're always welcome to comment below if you have other concerns or follow-up inquiries about tracking employee's tips and other payroll deductions using QBDT. I'm just around to help. Take care.
Deductions from Gross pay, when calculated on a percentage, calculate on the gross pay from the earnings table and on any gross pay items listed in the Other table before the deduction. This way, you can control the gross items used in the calculation. QB payroll has always been this way, for 25 years. I don't know why Intuit reps don't know this. It's basic stuff.
Your health insurance deduction will include the tips if you list it after the Tips line item:
If you list it before the Tips item, then it won't include tips: