The employee retention credit is not calculating correctly on Form 941 when there are employees that are not eligible for the credit and they receive tips. All tips are included on line !b on Worksheet 1 even for the employees that are not eligible.

Hi there, Ellen19.

I pulled up my Quarterly 941 tax form and the Employee Retention Credit section only reports the amounts associated with employees who qualify for the credit. You can review the setup of the reported tip item to make sure the form is only reporting the correct amounts. 

Here's how:

1. Go to the List menu and select Payroll Item List. 
2. Look for the tips double-click on it. 
3. Proceed to the Tax tracking type page, then make sure it's mapped to Reported Tips. 
4. Click Next, then select Finish. 

Aside from that, you can also run a payroll check-up. It works like a diagnostic tool that verifies your current setup by scanning your payroll data for missing information and discrepancies. Here's an article for more details: Run Payroll Checkup.

Once done, go back to the Form 941 and check if the amounts in the  Employee Retention Credit section are now correct.

Let me also share these additional articles for more details and reference:

• How QuickBooks Populates The 941
• Payroll Tax Compliance Links

Don't hesitate to reach out to us again if you have follow-up questions. We're always here to guide and assist you. 

My question is similar, but slightly different.  I need to count the tips towards the ERC Credit, but then how do I also have them flow through to the SS Tips line on form 941?

Let take a look at how your Employees Retention Credit (ERC) is being set up so we can help you fix this, SteveL1386.

You'll want to make sure that CARES Retention Emp is selected and is mapped correctly under the Tax Tracking type window. I've added screenshots for you to be guided visually.

At the same time, make sure to select CARES Expense when setting up an Expense account field to make sure it will flow to the SS Tips line.

The SS Tips line will not be reported if you change the tax tracking type from tips to retention. You can run the QuickReport to double-check if it's reporting correctly. Please read this article if you need to correct the ERC setup: How to set up and track the Employee Retention Credit under the CARES Act.

Read through also the IRS topics about how Employee Retention Credit (ERC) works: COVID-19-Related Employee Retention Credits: How to Claim the Employee Retention Credit FAQs. 

Please let me know in the comment section if you have any follow-up questions or concerns. I'm always right here to help. Keep safe!

Thank you for taking the time to reply Maria Soledad.  I have read through your response several times, and read the articles you referenced, but I honestly don't understand the answer.  Maybe it is because my question wasn't clear.  I have correctly entered and processed the ERC for several clients that don't have tips.  The wages associated with the ERC credit properly reflect in lines 5a & 5c on form 941, while also flowing through the Worksheet 1 correctly.  However, I cannot figure out how to have tips entered as ERC "additions" and still correctly be reflected on line 5b (Taxable social security tips) on Form 941.  Your screen shots reflect CARES Retention Health Credit  Company Contribution, and I fail to see what that has to do with reporting tips.  I apologize if I am be thick-headed, I just don't understand how your response addresses the tips issue?

Thank you.

Hey there, @SteveL1386.

Thanks for following up with us. I hope you're enjoying the day so far. I'm happy to lend a hand with your 941.

QuickBooks calculates the total wages, tips, bonuses, overtime pay, etc., that are subject to federal income tax, and paid to the employee during the reporting year. It's important to note that wages earned in the reporting year, but paid the following year, aren't included. To see this information, you can run a Payroll Item Listing report. I've included some steps below to review the report. 

1. Run the Payroll Item Listing report.
2. Filter the report, and in the Columns, uncheck everything but the Payroll Item and Tax Tracking Type.
3. Print the report.
4. Take a look at the Reported Tips section. 
5. Then, you'll need to run a Payroll Summary report for the quarter. 
6. Click on Customize Report, then hit the Filters tab. 
7. Under Current filter choices, select Payroll Item. In the dropdown box in the middle, pick Multiple Payroll Items.
8. Check off Reported tips. Please note that line 2 is equal to the total of the Adjusted Gross Pay and Total Employer Taxes and Contributions. 

However, in the case to enter the tips, you'll need to speak with your accountant for further advice. Your accountant will know the best course of action to take for you and your business. If you don't have an accountant, don't sweat. You can find one here in our Resource Center. 

For more information about our 941 form, you can reference How QuickBooks populates the 941 as mentioned by my colleague above. 

Please let me know if you have any questions or concerns. You can reach out to the Community at any time. Take care and have a wonderful day! 

Tori,

Thank you for taking the time to copy and paste a response.  I guess we will have to agree that I will have to figure this out on my own.  I AM an accountant, and have been using QB for payroll for several years, so the last two responses about how to record tips in payroll are not useful, unfortunately, as that is not the issue.  My question, again, is how does one enter ERC eligible tips so that they will be included towards the ERC credit on form 941 and related Worksheet 1, as well as Taxable social Security tips on line 5b, since ERC eligible wages all flow to line 5a?  It sounds like the only way is to manually override lines 5a & 5b after classifying the tips as ERC eligible wages. 

Thank you,

Steve

Is there an answer to this?

I am having the same problem. The moronic Quickbooks solution to figuring the ERC DOES NOT distinguish regular income from tipped income. If you record tipped income as a CARES addition as Quickbooks suggests, it will report the income on the wrong line of form 941.

Naturally QB does not allow you to override the fields.

My work around was to create an additional CARES addition for tips and use the tip income tax mapping for that item. This will drop it from Quickbooks calculations for the ERC, but I can at least generate earnings reports that I can use to manually fill my form 941 and my ERC worksheets.

Another route:

- Leave tips as normal for payroll setup.

- Referencing payroll report data, manually override Worksheet (In my case worksheet 4 Line 2a for 3rd/4th quarter recovery startup business) to add tips back into credit. Remember to exclude single-employee tips in excess of individual limits, "family" employee tips, etc., as applicable.

This override will result in change to all the previous associated ("un-overrideable") numbers; Part 1 Lines 13d-15, & Part 3 Line 21 and leave lines 5a and 5b as they should be.

This saved me from going back into everyone's payroll and individually recharacterizing reported tips which I had not previously associated with CARES.

Anyone see any issues?