How to handle employee tips received via customer credit cards

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I would like to call you so that you can help me with an issue that I am having with Quickbooks. It would take too long to describe it by typing it out.  I would also like to be able to call you in the future if I have any issues with Quickbooks and the associated accounting. Can we arrange that? You seem like an expert on the subject matter. I am willing to pay what ever the associated fees are for the consulting.

Hi there, @Jeffrey7,

If you wish to work with one of our contributors in the community, you can direct message or mention them here. I'm glad you found someone who's of great help with your concern.

Please know that you can still share some of your concerns here and we will be more than happy to help you with it.

I'll be waiting for your response if I can be of any help. Have a nice day!

I have set up the employee to include the payroll tips feature.  How do I setup a liability account to be able to offset the tips that are being received via credit card deposits from an outside vendor.  Currently, I added an expense account under wages to keep track but I know that is incorrect.  Thanks for any assistance on this.  I am fairly new in this industry and with QuickBooks Online.  However, I have worked on the Desktop version for over 25 years.

I can help you set up this liability account in QuickBooks Online (QBO), @userjsamotta3.

You can go to the  Chart of Accounts page to set up this liability account. I also suggest consulting an accountant for a recommendation on the specific accounts to use to track the transaction.

Follow the steps below:

1. Go to the Accounting menu on the left panel to choose Chart of Accounts.
2. Click the New button in the upper right to open the Account window.
3. Choose the Account Type drop-down and pick Other Current Liabilities or Long Term Liabilities.
4. Select the appropriate category in the Detail Type drop-down.
5. Enter a name for the account.
6. Click Save and close.

Check this article for more information on how to set up your liability account in QuickBooks Online: Set up a loan in QuickBooks Online.

Let me share this article for additional information with adding accounts in your Chart of Accounts: Add an account to your chart of accounts in QuickBooks Online.

Stay in touch if you have any other concerns or additional questions about the account. I’ll be glad to help and answer them for you. Enjoy the rest of the day.

Hi MaryJoy,

I have already setup the liability account.  How do I have the Payroll Item for Tips that is on the paystub go to the same GL Liability Account to offset the amount and reconcile that the tips have been paid?

Good afternoon, @userjsamotta3. 

Thanks for reaching back out to the Community. Allow me to give you some insight into this issue. 

If you use QuickBooks Online Payroll, there will be a default account tied to the default item. This means you won't be able to change it. However, here are the steps on how to include the type of tip on your employee's profile. Here's how: 

1. Go to the Payroll tab on the left-hand menu bar. 
2. Choose the Employees portion of the page. 
3. Click the Edit (Pencil) icon next to Pay in the "employee details." 
4. Put a check beside Paycheck Tip from the "How much do you pay" section. 
5. Hit Done. 

For further details, check out this link: Employee Tips. 

I'm always around if you have any other questions about QuickBooks. Just leave a reply below, and I'll get back to you.

How about when they are cashed out every night?  Most restaurants don't hold tips until paycheck period end.  They cash out and logging it in cash tips is great for the employee but not for the business since it still counts as sales in the deposit from the credit card company.  How do you remove it from the suggested tip liability account if you do not use the paycheck tips?

Hello there, JT60.

You can create a Journal entry to move the tip from the liability account. To ensure the transactions are recorded correctly, I'd suggest reaching out to your accountant so they can guide you on the correct accounts to use.

I've added this article for the detailed steps to add a Journal entry: Create a Journal entry.

You can also reconcile the account to ensure they match your bank statement.

Loop me in for additional payroll concerns. I'm always willing to assist further.

This solution does not add the tips that the employee receives on their check to line 7 "social security tips" on their W2. This is needed for the employer to take the credit on taxes. Cash tips do show up on line 7 of the W2. There certainly must be a way to have these tips that are paid to employees on their checks show up on line 7 of their W2's. The totals (line 1,3,5) are correct, wages plus tips I enter, but they are not showing on line 7.

Thank you for getting back in this thread, @kenbedient. I'll share details about why employee tips didn't show up on line 7 of their W2s.

A possible reason for the tips not appearing on line 7 of the W2 is that it wasn't taxed properly. You can verify it by accessing and editing the tips item and then reviewing its tax selections. Also, please see the screenshot I've attached below to ensure you've selected the correct boxes where the tax will take effect.

If it looks like this, know that it is set up to be taxed and to impact the boxes you've mentioned.
 

In case the payroll items weren't checked, then it only means that the defaults were overwritten, and it's not set up to be taxed causing it to not impact the box you've mentioned.

In addition, I've got you this article to help you report your employee's earned tips in QuickBooks Desktop Payroll for tax purposes: Pay and report tips.

You can also visit this article in case you'd like to add details to your reports in QBDT: Customize reports in QuickBooks Desktop.

The Community is open 24/7 in case you need further assistance with this, @kenbedient. You can also post here again if you have any additional QuickBooks-related concerns. As always, I'll be happy to help you out. Take care!

Thank you KurtKyle_MI for the response, I spent hours on the phone yesterday with no resolution. I can't seem to find those options. I neglected to mention I am using QBO, does that make a difference?

Thank you for the response KurtKyle_M. I cant seem to find these options. I should have said I am using QBO, does that matter?

Thanks for getting back to us, @kenbedient.

The information shared by my colleague is for QuickBooks Desktop, and that's why you can't find those options. For now, we can review the payroll item you've set up for the tips and check if it's set up correctly.

If you need to make some changes follow the steps below:

1. Go to the  Payroll menu, then select Employees.
2. Choose your employee.
3. From Pay types, select Edit.
4. Select the pay types your want to edit.
5. Enter the rates for each pay type.
6. You can rename some of the pay types. Select Edit ✎ next to the pay type. 
7. Hit Save.

For more details, refer to this article: Add or change pay types.

Also, if it's allocated tips that you've pay out to your employees, I'd suggest contacting our Customer Support Team. They have tools that can help you on how to handle the tips and report them correctly on W-2 forms.

Here's how:

1. Click the Help menu in the upper-right hand corner and click Talk to a human.
2. Type in "Talk to a human", then press Enter.
3. Look for I still need a human and click on it.
4. Select Get help from a human.
5. Choose between Chat with us, Schedule an appointment, or Have us call you.

Additionally, here's a great resource you can check for more information about W2's and payroll reports in QuickBooks: 

• Run payroll reports in QuickBooks Online Payroll
• Get answers to your W-2 questions

Feel free to get back here any time if you have QuickBooks concerns. I'm just a post away to help you. Keep safe!

Hi, I have a client that I do QB Desktop Enhanced Payroll for.  We were recently advised by our CPA that the credit card tips should be going in Box 7 on the W2.  I checked last year's and tips were not reported in Box 7.  I know that we are paying taxes on these tips so what do I do to fix this before running the W2's for this year?

Thanks,

Alexandra Lersey

Hi there,  Alexandra .

You can create an additional payroll item for the taxable tip amount. Use this payroll item to report all the tips the client received.

If you haven't created a payroll item, follow the steps below:

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

For more details, follow the steps in this article: Pay and report tips.

Also, the way your tips reported in the W-2 form depends on the selected tax tracking type. This explains how the amount reflects on your forms. 

If you already created a payroll item, you can verify the tax tracking type, here's how:

1. Select Lists, then Payroll Item List.
2. Double click on the tips item.
3. Hit Next till you reach the Tax Tracking type page.
4. See which forms the item affects and how it shows on those forms. 

I'll be sharing these references that will guide you in setting up your W-2s:

• Understand why the wage amounts are different on your employee's W-2
• Get answers to your W-2 questions

Please feel free to get in touch with me here for any additional questions about handling tips in QBDT. The Community always has your back. Have a great day!

Hi, the item is already set-up and we have been paying tips all year long.  When I attempt to edit the item it does not take me to the tax section.   All I get is:  "Name used in paychecks and payroll reports" and Next takes me to "Expense account."  Then my only option is Finish.

It is set up as Compensation for Tax Tracking though.  

I got you covered, @alexandra. I appreciate you getting back to this thread.

When creating payroll items, let's ensure we've selected the correct tax tracking type. That said, one possible reason you're not able to proceed to the tax section when editing a payroll item is due to the incorrect selection of the tax tracking type.

We can't edit payroll items when the setup method was selected already as EZ setup, we'll have to select the option Custom Setup.

To help you fix this, I'd recommend creating a new payroll item, and liability adjustments to correct your year-to-date additions. With that, let's follow the steps provided by my colleague, Joesem M, to guide you on how to create a new payroll tip item with the correct tax tracking type.

After doing so, I'd suggest consulting your accountant to know the best way to set up and correct the year-to-date additions created on a paycheck. 

For future reference, I've added an article to help you guide how to use liability adjustments: Adjust payroll liabilities in QuickBooks Desktop Payroll.

Thanks for visiting us today. Keep us posted if you require additional assistance with setting up tax tracking type in a payroll item. We're here to help. Stay safe!

Thank you for getting back to me so quickly.  I understand that I could do zero dollar paycheck for each employee that received tips (crediting the prior tips item and charging the new one for the same amount) and that it shouldn't change the taxes at all since the prior tips was set up as taxable compensation.   Do I need to do each quarter separately then or can I do one prior to year-end now?

Thanks

Did you ever get an answer to this?