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liane-murphy
Level 1

How do you process/enter tips/gratuity info from payroll svc. into QB?

I use an outside payroll service. I need to enter the info into QB, but am having a problem with the tips/gratuity for employees. I am out of balance. My questions:

1) What new accounts (type included) do I need to set up in the chart of accounts? I have: Tips Clearing (Bank) and Employee Tips IN (Other current liability). Am I missing an account?

2) In detail, what are the exact steps to enter the info. I've followed other recommended answers, but to no avail.

To start, when I make a deposit, I credit Sales acct. & Employee Tips IN (liability acct.). Is that correct?

Solved
Best answer December 10, 2018

Best Answers
qbteachmt
Level 15

How do you process/enter tips/gratuity info from payroll svc. into QB?

Tips are paid by your customers. That means you either track it as Liability (owed to staff) or as part of your income.

If the Staff gets to take tips as cash at night, now that is Loaned to them = your Asset, from Cash Register or Safe bank or wherever in QB you track and manage Cash on Hand.

Then, payroll happens:

Tips into payroll is either clearing that liability or your Expense.

They are taxable; you would also use a Wage Garnishment or Net Pay Deduction, for the amount the server already got. You don't them to get the amount again. This offsets the initial Loan (other asset).

A business with mostly credit card activity tracks tips as income and expense for purposes of avoiding what would appear to be a huge discrepancy on your 1099-K.

Ask your own CPA about this.

View solution in original post

21 Comments
qbteachmt
Level 15

How do you process/enter tips/gratuity info from payroll svc. into QB?

Tips are paid by your customers. That means you either track it as Liability (owed to staff) or as part of your income.

If the Staff gets to take tips as cash at night, now that is Loaned to them = your Asset, from Cash Register or Safe bank or wherever in QB you track and manage Cash on Hand.

Then, payroll happens:

Tips into payroll is either clearing that liability or your Expense.

They are taxable; you would also use a Wage Garnishment or Net Pay Deduction, for the amount the server already got. You don't them to get the amount again. This offsets the initial Loan (other asset).

A business with mostly credit card activity tracks tips as income and expense for purposes of avoiding what would appear to be a huge discrepancy on your 1099-K.

Ask your own CPA about this.

View solution in original post

liane-murphy
Level 1

How do you process/enter tips/gratuity info from payroll svc. into QB?

Thank you for responding to my question. Also, I did forget to mention that I pay cc tips in cash to employees daily - so thanks for to picking up on that fact.

In concept, I understand what you're saying, but for practical reasons, something is still not adding up for me when I process the transaction/payroll.  I am not balancing or clearing out my tips account for  some reason. This is what I do (hope it's not confusing):

When I make a credit card deposit with tips into checking (increases checking/bank account), and based on what you said, for example

$100 in sales/ $20 in tips
- credit my sales acct. (income)
- credit my tips clearing account (bank - where it's held until I process payroll) - but it ends up with a negative balance; why? Is that correct?
-------------------------------------------------------
Now, when I receive my payroll report, I enter the following into my chk register (not general journal ) only the amounts from my payroll svc. - payable to my payroll service (EFT).

$1,000 Check amount = net pay

$1,500 Payroll gross wages (expense)
<$20> Tips clearing (bank) - since I've already paid that amount.
<$480>         Payroll liabilities - taxes
$1,000 Net pay

But this where I'm having problems. My Tips clearing (bank) is not balancing; instead it's doubling in a negative balance. Am I supposed to credit another account when I make the initial deposit so I don't have 2 negatives in the TIPs clearing (bank)? Help! Thanks.
qbteachmt
Level 15

How do you process/enter tips/gratuity info from payroll svc. into QB?

"When I make a credit card deposit with tips into checking (increases checking/bank account), and based on what you said, for example

$100 in sales/ $20 in tips
- credit my sales acct. (income)
- credit my tips clearing account (bank - where it's held until I process payroll)"

This is a bit wrong already. If you intend to track tips as Liability, to be Cleared, it is:
Gross Sales Credits Income
Tips Earned Credits Liability
Tips Taken credits Cash Bank AND debits Other Asset for Employee Loan
Payments made by checks, cash, and Credit Card Debit Banking

Or, perhaps you are using "tips clearing account as Bank" to be Source of Funds taken; but you should be using a real Source of Funds, not a Clearing Bank for this.

"- but it ends up with a negative balance; why? Is that correct?"

Your 'bank" concept is Backwards. You have negative Asset instead of Positive Liability. Or, that is Tips Taken, not "clearing Liab." Taken as Cash = credit the bank type account where you manage Cash moving.

You don't seem to be tracking that their Taking of Tips is a Loan (other current asset) to be part of the Payroll as a Net wage garnishment Repayment process. You gave them money, already. That needs to show Repaid to you.

You didn't tell us if you are Not Intending to track Tips as Liability?

"Now, when I receive my payroll report, I enter the following into my chk register (not general journal )"

Then you use Banking menu > Write Check.

Debit Gross Wages
Credit Employee Loan for tips ran through Payroll this time (as the Net Deducted)
Debit Tips Liability for that same amount for the Gross amount taxed

Line 2 is going to compensate for the Tips taken as Cash already.
Line 3 is going to remove the Tips Liab that you Taxed.
They don't need to match to each other. Examples:

$100 tips taken = $100 tips taxed = Gross $100 in and Net $100 removed.

Or, you cannot do that entire $100 on one check cycle, because the person has taken too much in tips and their base rate doesn't cover taxes. That why you cannot always allow them to take All Tips. If there are $100 tips earned, but you Cannot let them take it all, since they will owe Taxes on it, you give them $70 tips advance as Cash, and hold the other $30 for taxes to compute on the $100. Then, Payroll Tips in and out might reflect:
$100 tips IN (clears the liability) and $70 Tips Out (clears the cash loaned) and there is a small difference that has increased their take home, as the leftover from tax withholding

"only the amounts from my payroll svc. - payable to my payroll service (EFT)."

Your example, restated and assuming there is no Liability accounting for Tips:
Sales Gross $120 Credit Income
Tips take from Cash will Credit Bank (till, safe, cash register)
Debits are Payments you got that date

Your Payroll example is missing the $20 Debit to Liability for Tips, the $20 repayment to you for the Cash they already got, or both. I am having to make some assumptions.
liane-murphy
Level 1

How do you process/enter tips/gratuity info from payroll svc. into QB?

Thank you once again for responding and your explanation. I've reviewed what you said, but when I process my transaction, my balance is still off in the payroll/wages step. Also, I am planning on tracking Tips as a liability as I am tracking my sales separately from tips received.

Briefly: (this part seems to be okay - or, maybe not)

CR Sales income        $100
CR TIPS Liabilities (increase liabilities) 20
DR TIPS Loan (decrease assets) <20>
CR TIPS Clearing/Holding (increase cash bank)        20
DR Banking/Checking deposit (increases bank) Total: $120

In Payroll: Using Banking menu - Write checks to payroll service (example)

DR Gross Wages (expense)         $500
CR TIPS Loan (increase asset/tips paid back) <20>
DR TIPS Liabilities (decrease liabilities) 20
??DR TIPS Clearing/Holding (to clear cash bank) <20>
DR Payroll Liabilities         <100>
CR Banking (decreases bank)         Net Pay: $380

My TIPS Clearing/Holding account increases and isn't clearing. I'm still doing something wrong. Hope this is not driving you crazy; it seems to be driving me crazy. ;) Thanks for you help.
qbteachmt
Level 15

How do you process/enter tips/gratuity info from payroll svc. into QB?

"My TIPS Clearing/Holding account increases and isn't clearing"

Because you still have this Backwards. Work through it step by step. It isn't this hard, if you take it a bit at a time.


My changes to your listing:
CR Sales income        $100
CR TIPS Liabilities (increase liabilities) 20
<< These two lines, above, are going to be the Amount of Funds paid to you today by various methods>>
= DR Banking/Checking deposit (increases bank) Total: $120


Stop here. Does that make you happy and match reality? Let's keep working through the steps. This is the part you have backwards:


Debit Employee Tip Loan Other Asset 20 because you Gave them Funds (increases their Debt to you)
Credit the Safe or Cash Register 20 that is the Source of the Funds they took (decreases your Cash on hand)
= 0 or In Balance. Tips doesn't even come into play here, except as the Justification for the loan.


There is no Clearing or Holding involved. There is only Real Activity.


"In Payroll: Using Banking menu - Write checks to payroll service (example)

DR Gross Wages (expense)         $500
DR TIPS Liabilities (decrease liabilities) 20"
= stop here to see this is Gross Taxable; that should make you happy and match your reality.


>>??DR TIPS Clearing/Holding (to clear cash bank) <20>
This DOES NOT EXIST; there is no Cash Back to Cash Bank. The Repayment of the loan will result in Less Takehome this pay cycle, not Cash back.



"DR Payroll Liabilities         <100>" <== This part is backwards.


Debit Employer tax expense and CREDIT payroll liability for Employee + Employer shares; later, paying liabilities will Debit PR Liab and Credit Checking. Credit Liability is in lieu of Credit to bank = not paid yet.



If the payroll service takes your money right away, your payroll entry for this topic should never include Payroll Liabilities at all. Your entry will simply Debit Gross Wages and Debit Employer Taxes and Debit Tips Liability. Everything else would be the Credits. We didn't review this detail for holding and paying payroll tax liabilities.


CR TIPS Loan (increase asset/tips paid back) <20>
CR Banking (decreases bank)         Net Pay: $380 <== which should have been $400, but they already got $20 of that


I think that's it. I prefer an Excel worksheet, for math :)
mac5burro
Level 1

How do you process/enter tips/gratuity info from payroll svc. into QB?

I'm having a similar issue.  My p & L says I have tons of $$$ which I do not and I'm convinced its because I'm not properly tracking the tips.  AAAGGHHH. 

 Example $200 in sales ($100 cash/$100 credit card)

recorded as $200 deposited into cash drawer. credit cards clear the next day ($100 sales $50 tips)

$150 goes into bank account.

$50 left in cash drawer but my staff took those $50 already. How do I show the debit?

KatM1956
Level 1

How do you process/enter tips/gratuity info from payroll svc. into QB?

I’m very sorry, but if tips a company receives meets the 4 criteria under IRS rules, it is NOT to be recorded as income to the company.  If it is a “gratuity” that a company sets the amount and requires it to be paid, the IRS does not consider it a tip.  Unless you’re doing a JE to IMMEDIATELY transfer the tip dollars received to a liability account (I.e. Tips Payable), tips should not be recorded as income to the company and show up on the P & L.

KatM1956
Level 1

How do you process/enter tips/gratuity info from payroll svc. into QB?

When money is received and it meets the criteria that the IRS has set to be considered tips, it should NOT be included with or recorded as income to a company.  Unless the company immediately reclasses those dollars to a Liability account (i.e, Tips Payable”, counting it as income is incorrect.  

qbteachmt
Level 15

How do you process/enter tips/gratuity info from payroll svc. into QB?

"Example $200 in sales ($100 cash/$100 credit card)"

 

Do not confuse Payment Type with Sales.

 

"recorded as $200 deposited into cash drawer."

 

Sales credit is All Sales, or are Tips in that value? Because you expect that Tips are in the Payments. That is where you got confused.

 

"credit cards clear the next day ($100 sales $50 tips)"

 

Then it is Not $200 of Sales. And this only totals $150; what happened to that difference? Did you mean:

$150 Sales income <== these Three Lines offset each other

$50 Tips Liability <== these Three Lines offset each other

$50 Taken from Cash Till by Servers <== these two lines Offset each other

which is matched to the entry for $50 Borrowed by the Servers as Employee Loan (other current asset) <== these two lines Offset each other

And then $200 as paid by checks, cash and CC charges as Settlement <== these Three Lines offset each other

 

Plus, you usually need an Over/Short entry as linked to income

And you might need a Sales Tax Liability item

 

"'$50 left in cash drawer but my staff took those $50 already. How do I show the debit?"

 

That is Employee Loan. It is Other Current Asset. Like this:

They Borrowed $50.

 

Then, tips through payroll is Gross $50, clearing the Liability account. It gets Taxed. In your business where you allowed them to Take Money already, then you also need the Loan Repayment item, as Employee Loan repayment Deduction, like a wage garnishment, to clear that Other Current Asset for $50, to avoid it adding to take home. They Already Got it.

 

 

yes, this is where people often get it wrong: "Unless you’re doing a JE to IMMEDIATELY transfer the tip dollars received to a liability account (I.e. Tips Payable), tips should not be recorded as income to the company and show up on the P & L."

 

You won't JE tips. You also don't mix Tips into Sales. A lot of people never considered that the Money is not Sales. The Money is the Banking. Not the sales.

 

 

Here are Two Bookmarks for Summary Sales, that helps. There is a blog for Desktop, and a Video for QB Online:

 

Desktop Sales Summary

 

 

QBO Sales Summary

 

jennyrice262
Level 1

How do you process/enter tips/gratuity info from payroll svc. into QB?

I don't understand something though.  I don't have employees at the moment.  So I must be entering my tips the wrong way in qbo because it automatically takes it out of my account as a payment.  What is with that?  How can I have it be taxed as income if it is taken out. (which it is not)

CBW

IamjuViel
QuickBooks Team

How do you process/enter tips/gratuity info from payroll svc. into QB?

Hello there, @jennyrice262.

 

Let's first enable the Tips feature in your QuickBooks account. Once turn on, you can add the tips field to sales receipts. From here, you'll be able to record it as an income.

 

Here's how to  turn on Tip field on sales receipt:

  1. Go to the Gear icon.
  2. Select Account and Settings.
  3. Choose the Sales menu.
  4. Click the pencil icon on the Sales form content section.
  5. Check the Tips (Gratuity) box.
  6. Select Save.
  7. Click Done.1.GIF

Once completed, you can now create a sales receipt to record your customer payments and tips.

  1. Go to the New icon ⨁.
  2. Choose the Sales Receipt.
  3. Enter the Customer name and other sales details.
  4. At the bottom right, add the tip amount in the Tip field.

You can check this article for more detailed tips: Add tips to sales receipts.

 

Also, you can browse these articles to learn more insights about managing your income transactions:

Always feel free to leave a post below if you have other questions about tracking your income in QuickBooks. I'm just a few posts away.

sonnij
Level 2

How do you process/enter tips/gratuity info from payroll svc. into QB?

I have a sort of similar situation. POS system tracks tips and pays employees their tips in payroll. Payroll is brought over to QBO as journal entry with tips showing as paid out. I still have a tips payable account to clear. What journal entry do I need to add to zero out that payable account?

Mgmt1
Level 1

How do you process/enter tips/gratuity info from payroll svc. into QB?

Hello! I picked up on this not to reply but because I am having the same issues.

I am looking for a solution.

I do the Bookkeeping for a restaurant.

THIS IS WHAT THE POS SHOWS.

The credit card sales e.g. 1 day  (A daily Sales Summary)

These amounts were deposited into our bank account.

Amex $53.43

Discover $37.81

MasterCard $546.58

Visa $4189.67

The above amounts are including the tax (8.8%) & the tips $ 544.74 (already taken by the Employee same day and only reported to us).

The cash sales $425.91  - No cash  (From this amount they paid the tips of $425.91 and Manager wrote a check to cash it for the difference of $118.83 to completely pay the tips to employees.

POS Shows cash $425.91 less tips (544.74) = negative day (118.83)

......

This is how I enter it in Quickbooks. Daily Sales summary.  1 for each credit card.

e.g. Amex /.  ..food (acct. 4100 cogs- food sales) .............53.43 less 8.00 tips divided by the tax 1.088 = 41.76 (food sales) + tax 3.67 = 45.43). This way what goes into quickbooks for that deposit -  As the transaction Journal in quickbooks shows.

1099 undeposited funds $53.43

4100 the food sales $41.76

2400 the tips acct $8.00

2550 taxes $3.67

Each cc same way.  1 daily sales summary for each. (Amex/Disc/Mcard).

Where I have the issue is how to do the sales receipt for cash sales when I cannot do a negative sales receipt.

I need to be able to include the cash sales, the tip paid, the taxes.

I did it this way. The sales receipt.

425.91 divided by the tax 1.088 = 391.46

-544.74 tips paid with the cash

bal. sales receipt (118.83)  (we cannot enter a negative sales receipt) I created an item name "negative day- tip fund"

neg. day...$118.83

= 0.00

The manager writes a check for 118.83 we have the sales receipt showing the cash for tips acct 118.83 and the check the manager writes -118.83 0.00 owed to employee for tips. 

The way quickbooks shows it as Transaction Journal

1099 Undeposited fund $0.00

4100 food sales $391.46

2400 tips  -544.74    (note: in each credit card we deduct the tips and they are in the tips account on one side and then when we show it in the -544.74 as paid this zero outs the tips account)

1020 cash for tips 118.83

2550 taxes $34.45

I would like to get your opinion on this. I do not think I should be paying tax on the tips.  I also do not think I should have 118.83 as food sales when is negative and is tips. 

Hopefully you have time to give me some advise. 

Thank you

Level1Mgmt1

 

(Note: what I am seeing with all the POS for Restaurants is that they are confusing sales with deposits. How they are "expressing it" in the reports sales summaries is that they are confusing bookkeepers. The creators of this programs and merchants are tryng to show everything as a sale because they collect a percentage on the entire amount).

susanhd
Level 1

How do you process/enter tips/gratuity info from payroll svc. into QB?

Hello,

I am hoping you can help me. My employee receives credit card tips. When I do my credit card deposits should I put the tips in the tip other asset liability account and also when I pay her do I take it out of this account. If so how should I track the tips since it is not income for our company just a by pass. But it will show up at the end of the year as income for us.

Thank you

MarsStephanieL
QuickBooks Team

How do you process/enter tips/gratuity info from payroll svc. into QB?

I'm happy to provide some information about handling tips in QuickBooks Desktop Payroll, @susanhd.

 

There are two ways to record it, depending on how your employees received their tips. If it's a taxable tip amount, use an Expense account. However, if the tip amount was retained by the employee, use a Liability account. 

 

It's always best to consult with your accountant before recording tips in QuickBooks. They know what's best for you and your business. If you don't have an accountant, you can find one in our Resource Center.

 

I've added this article for more information on how to add Tips in your employee's paycheck: Report tips in and out on employee paychecks in QuickBooks Desktop Payroll.

 

You may consider checking out this article about using the reports feature to track specific aspects of your business in QuickBooks Desktop: Understand reports. This contains sub-articles such as customizing and combining reports from multiple company data files.

 

I'll be here if you have other questions. Let me know in the comment section and I'd be happy to back you up. Have a wonderful day ahead.

sonnij
Level 2

How do you process/enter tips/gratuity info from payroll svc. into QB?

HI I am still having an issue with tips paid out in payroll by 3rd party app.  The app makes a JE with tips to expense account.  The invoice/sales receipt have tips in to a liability account.  The issue is, the liability account continues to grow and there is no deduction against the growing balance? How do I account for this?  specifically, which steps to resolve this issue?

Razzz
Level 1

How do you process/enter tips/gratuity info from payroll svc. into QB?

I have the same issue. Tips imported as liability. Payroll records tips paid as expense. 

AlexV
QuickBooks Team

How do you process/enter tips/gratuity info from payroll svc. into QB?

Thanks for joining this thread, Razzz.

 

It looks like you use a different payroll provider. I understand that we need to post the transactions properly to avoid issues.

 

However, it's best to reach out to your payroll provider or to the third party importer. It's possible that this is due to incorrect mapping of the data. They can assist you further on how to correct it.

 

Keep on posting here if you have more questions. Stay safe!

cadkeller
Level 1

How do you process/enter tips/gratuity info from payroll svc. into QB?

Question on this...are the tips not included with the gross wages?  Shouldn't wages reflect this amount? If they go to a liability account how do they get caught for the yearend W-2's.  You say debit Gross wages $500, DB Tips Liability $20 and credit everything else which I assume is the employees payroll taxes.

 

 

lightwalkersvcs
Level 1

How do you process/enter tips/gratuity info from payroll svc. into QB?

I am having the same problem.  Cash tips never get deposited, the employees takes at end of shift.  The cash tips are reported to PR company.  They are included in gross wages (separate line) taxed and then of course as a deduction to net pay.  My journal entry is always off by the cash tips, leaving me with a credit to distribute.

Mark_R
QuickBooks Team

How do you process/enter tips/gratuity info from payroll svc. into QB?

Let's get this sorted out, @lightwalkersvcs.

 

When processing cash tips to the employees who'll take it at the end of their shift, you can create a clearing account and use it to deposit the amount. Then, you'll have to add the clearing account under the credit side when creating the journal entry. This way, it'll offset the cash tips. 

 

Here's how to set up a clearing account:

 

  1. Go to the Lists menu, then select Chart of Accounts.
  2. Right-click anywhere in the window and choose New.
  3. In the Add New Account window, select Bank.
  4. Enter the necessary information.
  5. Click Continue.
  6. In the Account Name field, enter Clearing Account.
  7. Hit Save & Close.

 

Once done, you can use this account to deposit the employees' cash tips. Then, create a journal entry for your payroll and add the clearing account to offset the cash tips.

 

I'm also adding this article to learn more about reporting tips in and out on employee paychecks.

 

Please let me know if you need clarification about this, or there's anything else I can do for you. I'll be standing by for your response. Have a great day.

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