Accounting for Credit Card Tips

@gincollingo 

I don't see where you are crediting (reducing) the bank account for the tips paid out to the employees.  When the employees receive the tips, your J/E should debit the Unallocated Tips liability account and credit the bank account, not Other Income. 

Hi Rainflurry.  Thanks for responding.

The issue I'm having is that credit card tips aren't paid directly from the bank account, they're paid thru QB payroll.  I set the client's payroll up to have additional pay types for Credit Card Tips and Cash Tips.  The owner tells me how to allocate tips and I input the amounts for each employee for both credit card and cash tips when I run payroll.

QB runs these amounts thru payroll so that each employee gets taxed on the tips.  Note that credit card tips increase employees' gross income while cash tips do not.  Bottom line is that tips are paid thru QB payroll so the tip payments come out of the bank account thru payroll.

My problem is that there isn't a way to connect the Unallocated Tip liability account with payroll.  So I need to create a journal entry to reduce (debit) the liability but I need an account for the offsetting credit.

Thoughts? 

@gincollingo 

Are you using the default account for tips called "Undistributed Tips"?  You mentioned you use an account called "Unallocated Tips".  You need to use the "Undistributed Tips" default account to record the liability from each day's sales.  That account is created automatically when you enable tips in Account and settings.  Then, when you run payroll and allocate the tips, QBO will reduce the Undistributed Tips liability account and subject the tips to withholding.  You should remove the entries to Other Income.  As I'm sure you're aware, tips are not income to the coffee shop.

I was wondering how you solved this. I'm having the same issue where the tips paid out through QB payroll aren't deducting from my tips collected account. 

I would be happy to assist you with your paycheck tips, @moonrise. 

Please note that the tips-tracking feature is not directly linked to the payroll function. When adding paycheck tips or cash tips, they will not be deducted from the Undistributed tips account.

To distribute the tips, we will need to create a check for your employees. Here's how: 

1. Click the + New button, then choose Check.
2. From the Choose a payee drop-down, select the employee you are paying the tip distribution.
3. From the Bank Account drop-down, choose the account from where you are making the liability payment.
4. Under Category, select Undistributed Tips and enter the tip amount.
5. Fill in the rest of the check, then hit Save and Close.

To learn more, you can check and read this article: Share tips with your team.

As tips received by an employee are taxable income, we'll still have to report them when running payroll. Cash tips shouldn't be included in employee net pay because they receive this amount directly. However, tips received from credit cards or other electronic payments can be added to their regular pay and included in their paycheck.

To ensure that the bank isn't deducted twice for the check you've created and the payroll you've run, we can set up an offsetting tips-out deduction to your employee's profile. 

1. Go to the Payroll menu.
2. Head to Employees, then select your employee.
3. From Deductions & contributions, select Edit.
4. From the Deduction/contribution dropdown menu, choose + Add deduction/contribution.
5. Set Other deductions as the type, then choose Other after tax deductions. 
6. Enter "Tips out" in the Description (appears on paycheck) field.
7. Add the amount and hit Save.

I'll be sharing this article to help you run your payroll reports: Run payroll reports.

Let me know if you still have questions about your Paycheck tips. Have a great day, and take care.