Base comp used for health insurance calculation not pulling in tips earned

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.

Here's how:

1. Go to Lists, and then choose Payroll Item List.
2. Select New from the Payroll Item drop-down.
3. Choose Custom Set Up and click Next.
4. Select Deduction, and then choose Next.
   
5. Name the item (for example, Tips Out), and then click Next.
6. Choose the liability account, and then select Next. (Note: You must choose the same account as the one entered in the Expense Account field of the addition payroll item for taxable tips).
7. Choose the right account from the Tax tracking type window.
8. Select Next, and then Next again.
9. In the Calculate based on quantity window, choose Neither and select Next.
10. Click Net Pay and select Next.
11. In the Limit Type window, click Finish.

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.

Hi.  

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?

Hi.  

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: