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Report tips in and out on employee paychecks in QuickBooks Desktop Payroll

QuickBooks Desktop Payroll allows you to report tips in and out on employee paychecks.

If your employees receive tips from customers, these tips are subject to payroll taxes.

  • Cash Tips - Employee receives the tips in cash, keeps and reports the amount to you. Since the employee has the cash tips, you must report them on the paycheck, then take the amount out so they do not get paid for the cash tips again. You need to create both payroll items below.
  • Credit Card Tips - Employee turns in tips, or customers charge tips on credit cards that will be added to employee paychecks. You need to create the first payroll item below.

Choose from the steps below depending on how your employees received their tips.

Create a payroll item for taxable tip amount

Use this payroll item to report all the tips the employee received.

  1. In QuickBooks Desktop, select Lists > Payroll Item List.
  2. Select Payroll Item > New.
  3. Choose Custom Set Up and select Next.
  4. Choose Addition and select Next.
  5. Name the item (for example, Tips In) and select Next.
  6. Choose the Expense account and select Next.
  7. In the Tax tracking type window, choose Reported Tips. Select Next > Next.
  8. In the Calculate based on quantity window, choose Neither and select Next.
  9. In the Limit Type window, select Finish.

Create a payroll item for tips retained by the employee

Use this payroll item to take away the tips that the employee physically received.

  1. In QuickBooks Desktop, select Lists > Payroll Item List.
  2. Select Payroll Item > New.
  3. Choose Custom Set Up and select Next.
  4. Choose Deduction and select Next.
  5. Name the item (for example, Tips Out) and select Next.
  6. Choose the Liability Account and 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. In the Tax tracking type window, choose None. Select Next > Next.
  8. In the Calculate based on quantity window, choose Neither and select Next.
  9. Choose Net Pay and select Next.
  10. In the Limit Type window, select Finish.

After you set up these items, you can add them to the employee paychecks under Other Payroll Items. Enter the amount for each item in the Rate column.

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