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How to Set up Tips

Want to set an Payroll Item List "Tips" and to make sure taxes are decuted and the this ends up on the W2's at the end of the year.



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QuickBooks Team

Re: How to Set up Tips

It's nice to see you here today, @Raman1,


I'm here to help you set up employee's tips in the Payroll Item List window.


Let's get started by creating a payroll item for the taxable tip amount. Use this item to keep track of all the tips your employee received.


  1. Go to the Lists menu.
  2. Click on the Payroll Item List.
  3. Right-click anywhere then choose New.
  4. Select Custom Set Up then Next.
  5. For the Payroll Item Type, choose the Addition and hit Next.
  6. Enter the item description or name (for example, Tips In).
  7. Click Next, then choose an Expense account.
  8. Hit Next again and select Reported Tips as the Tax tracking type.
  9. On the Calculate based on quantity window, choose Neither and select Next.
  10. Once done click on Finish.

Next, let's create another item for the tips retained by the employee. This is used to take away the amount your employee physically received, so it doesn't add up to their net pay.


  1. Right-click anywhere on the Payroll Item List window then choose New.
  2. Choose Custom Set Up then click Next.
  3. This time, use Deduction as the type.
  4. Click Next.
  5. Key in the name of the item (for example, Tips Out) and select Next.
  6. Select a Liability Account and select Next.
  7. For the Tax tracking type, choose None. Select Next Next.
  8. Select Neither in the Calculate based on quantity window.
  9. Lastly, click Finish.

Once done, you can now assign these items on the employee's paycheck. You can also check this article which has the complete instructions on setting up tips in QuickBooks: Report tips in and out on employee paychecks in QuickBooks Desktop Payroll.


Please keep me updated if you have further questions about tips. I'm always free to help you anytime. Have a nice day!