Reporting Cash Tips in and out on employee paychecks in online payroll

Let me share how you set it up in QuickBooks Online, THTreasurer.

Cash tips are gratuities that are given or paid to the employees in the form of cash, rather than added in their paychecks. You use the Cash tips account to track them. When you create paychecks, you'll have to enter the reported cash amount so that taxes will be withheld. Having said this, there's no need to set up a Tips out account.

I'll walk you through setting it up:

1. Click Payroll.
2. Go to the Employees tab.
3. Select the employee to open their profile.
4. Click the Pencil icon beside Pay.
5. Under How much do you pay Employee?, click the Pencil icon.
6. Go to Common pay types, then check the Cash Tips box.
7. Click Save.

I'll share these references to guide you better:

• Supported pay types and deductions explained
• About tips and paychecks

Feel free to get back to this thread if you have additional payroll questions. We'll reply as soon as we can. Take care!

Hello,

I ran my payroll this evening and claimed the cash tips for my servers. However, when I checked the paystubs the math does not add up. The cash tips are not included in the gross wages and taxed. Is there a way I can set this up correctly?

Hi there, EvergreenK. 

I'll make sure you'll be able to show the cash tips in QuickBooks Online (QBO) Payroll. 

If your employees received tips from customers, you’re required to track and withhold taxes from those tips. If the tip is less than $20 per month, tips aren’t subject to federal taxes.  You may visit the IRS website to learn more.

Here's how to set up payroll items for tips in QBO:

1. Go to Payroll, then Employees.
2. Choose an employee. 
3. Select Edit under Personal Information.
4. Choose Cash Tips or Paycheck Tips under Additional pay types.
5. Once done, click Save.

Additionally, to help determine what type of tips you've provided to your employee, check out this article: 

• Cash tips Vs. Paycheck tips
• About tips and paychecks

Please let me know if you should have any questions about employee tips or QuickBooks-related topics. I'm always here to help and have a good one.

I did that process. When i ran the paystub report it looks as though the cash tips are just declared as other pay but were never added to the gross to deduct the taxes. I need the cash tips added to the gross wages as they are taxable then deducted out as they have already been received by the employee. 

You'll want to record it as paycheck tips instead, @EvergreenK. This way, it'll be included in your employees' paychecks and withheld from taxes.

The cash tips suggested by my colleague above are used when tips are given to your employees directly. These are taxed, but not deducted from their pay.

All cash and non-cash tips an received by an employee are income and are subject to Federal income taxes. All cash tips received by an employee in any calendar month are subject to social security and Medicare taxes and must be reported to the employer. 

Since you'd like to add the tips, which are taxable, to their gross wages, you'll want to record them as paycheck tips. Please keep in mind that they are subject to federal taxes once they exceed $20. To do so, follow the steps below:

1. Go to the Payroll menu and select Employees.
2. Click the name of the employee.
3. In the Employee details section, select the Pay pencil icon.
4. Go to the How much do you pay [employee]? section. Then, select Addition pay types.
5. Look for the Paycheck Tips and check its box.
6. Select Done.

Once done, you can now enter the amount in the PAYCHECK TIPS column when creating a paycheck. Please check the screenshot below as your reference.

See this article to learn more about different tips: Pay and report tips.

In addition, you can run the Payroll Summary by Employee report in QuickBooks Online Payroll. This will show the comprehensive report of wages, deductions, and tax info, totaled by employee or period. Just go to Reports and look for Payroll Summary by Employee report.

Please feel free to get in touch with me here for any additional questions about handling tips in QBO. I've got your back. Take care.

Based on the qbo articles it says that cash tips is used when the employee receives their tips in cash at the end of each shift. This is what is occurring. When i ran them as paycheck tips it added the tips to their gross earnings but never deducted them. Do i need to add a deduction line item since the funds have already been distributed to the employee? I want them just taxed not distributed again

I appreciate your patience while performing the suggested troubleshooting steps above, @EvergreenK. I'll share further clarification about the tips recorded in QuickBooks Online.

If you add another type of deduction to the tips, it'll be calculated differently. In terms of the tax on the cash tip or paycheck tip, you're unable to see this on your employees' paychecks or pay stubs. This is because they're subject to Medicare and social security taxes during a single calendar month.

Your idea about seeing the tips is interesting, and I’d love to help you with this. You'll want to share this with our Product Developers. They will evaluate these and pick some of them to include in future updates. This way, we can help you with your business needs.

Here’s how:

1. Go to the Gear icon.
2. Under the Profile column, select Feedback.
3. Share your feedback. Then, click Next.

You'll want to track your suggestion through this website. You can also visit our blog to keep up with all of our recent events and developments.

You can read about paying and reporting tips in the program. This way, it'll be easier to track and withhold taxes from those tips. 

Additionally, you can check this Community site for references: Commonly used articles to get started with Payroll. It covers the breakdown of articles about setting up Online Payroll, such as employee pay, paying & filing of tax forms, direct deposit FAQs, etc.

Please know that I'm just a post away if you have any other questions about tips in QuickBooks. I'll be happy to help you further. Have a great day ahead.

My accountant created a deduction to then remove the paycheck tips that are not to be paid on again in that check.  You will also need to consider the fact that if you pay the employee their cash tips from credit cards at night, you then need to remove that much from sales.  If you don't it looks like you made upwards of $30,000-$100,000. more than you earned yearly, since the pay went directly to an employee and not your business.

I'm having the exact same problem.  In desktop I had a payroll item deduction called tips out.  Apparently that's not possible in QBO and I have to go into employee set up and add that weeks tip deduction amount to every tipped employee before I can run payroll.  We also pay commission to some people that is based on a percentage of sales, so that will have to be edited every week as well. It's very disappointing that QBO doesn't seem to be able to handle this issue as well and QB desktop, and adds a lot more work for me since we pay 55 employees. 

I understand the struggle on your end, and I'm here to share detailed information about tip deduction. Managing finances and ensuring accurate records is crucial for any business. The ability to deduct tips directly within QuickBooks Online would be incredibly beneficial for streamlining your payroll and accounting processes. It would save time and reduce the potential for errors, making your financial management more efficient.

However, this feature is currently unavailable in QuickBooks Online (QBO). In the meantime, I recommend sending feedback to our Product Engineers. Your input is invaluable as it helps us understand the needs and preferences of our users. By submitting feedback, you can contribute to the development of future updates. Our Product Engineers regularly review user suggestions to identify areas for improvement and new features that could enhance the overall user experience.

Here's how:

1. Select the Gear icon, then choose Feedback.
2. Type in your product suggestions.
3. Select Next to submit.

Your ideas and input are appreciated. We value your initiative in bringing these concerns to us. If you have cash tips, deductions, or any payroll-related queries, let us know by clicking the Reply button below. Our dedicated team is readily available to provide assistance and support whenever needed. We are committed to ensuring a smooth and seamless payroll experience for all.