Does QBO take tax out of tip income? It appears after tax on the invoice form. Can someone please clarify for me?

Hi, @userjpcornes.

Thanks for reaching out to the Community. I'm here to help and make sure that you'll be able to know if QBO takes tax out of tip income.

If you receive tips from customers, these tips are subject to payroll taxes. QuickBooks allows you to report tips depending on how your employee received them. 

First, create a payroll item for taxable tip amount. Use this payroll item to report all the tips the employee received.

Here's how:

1. In QuickBooks Desktop, select Lists and choose Payroll Item List.
2. Click the Payroll Item drop-down and select 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.

Then, 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. Select Lists and choose Payroll Item List.
2. Click the Payroll Item drop-down and select 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. 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.

You'll need to enter these two items on the employee's paycheck. One is to record the tips the employee received. The second item offsets the reported cash tips. 

For more information, check out these articles:

How do you process/enter tips/gratuity info from payroll svc. into QB?

Supported pay types and deductions explained

Additionally, you can also ask your own CPA about this.

I'll be here if you have other questions. Let me know in the comment section and I'd be happy to back you up. Have a wonderful day ahead.

Thanks for the reply.  I am not sure I explained my situation well enough in my inquiry.  I do not have any employees or payroll.  I am a self-employed small business owner.  I have taken a couple of owner draws from my business, but that is it.  How should I handle this tax on tip  issue if I am self-employeed?  

Thanks for the reply.  I am not sure I explained my situation well enough in my inquiry.  I do not have any employees or payroll.  I am a self-employed small business owner.  I have taken a couple of owner draws from my business, but that is it.  How should I handle this tax on tip  issue if I am self-employeed?  

Hi there, @userjpcornes. Thank you for posting your reply here in the Community. Allow me to give you information to resolve this matter.

For tax tips, you can record it under Taxes and Licenses category since it is a tax related expense. You can refer to this article for further assistance.

If you're unsure of the category, you can verify this with your accountant.
 

You can check this article on how to get your self-employed tax info into TurboTax Self-Employed or TurboTax Live.

Please don't hesitate to post a reply if you need further assistance. Take care and have a good one!