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

Forum|Forum|7 years ago
December 11, 2018
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I use an outside payroll service. I need to enter the info into QB, but am having a problem with the tips/gratuity for employees. I am out of balance. My questions:

1) What new accounts (type included) do I need to set up in the chart of accounts? I have: Tips Clearing (Bank) and Employee Tips IN (Other current liability). Am I missing an account?

2) In detail, what are the exact steps to enter the info. I've followed other recommended answers, but to no avail.

To start, when I make a deposit, I credit Sales acct. & Employee Tips IN (liability acct.). Is that correct?

QuickBooks Desktop

Best answer by qbteachmt

Tips are paid by your customers. That means you either track it as Liability (owed to staff) or as part of your income.

If the Staff gets to take tips as cash at night, now that is Loaned to them = your Asset, from Cash Register or Safe bank or wherever in QB you track and manage Cash on Hand.

Then, payroll happens:

Tips into payroll is either clearing that liability or your Expense.

They are taxable; you would also use a Wage Garnishment or Net Pay Deduction, for the amount the server already got. You don't them to get the amount again. This offsets the initial Loan (other asset).

A business with mostly credit card activity tracks tips as income and expense for purposes of avoiding what would appear to be a huge discrepancy on your 1099-K.

Ask your own CPA about this.

qbteachmtAnswer

Tips are paid by your customers. That means you either track it as Liability (owed to staff) or as part of your income.

If the Staff gets to take tips as cash at night, now that is Loaned to them = your Asset, from Cash Register or Safe bank or wherever in QB you track and manage Cash on Hand.

Then, payroll happens:

Tips into payroll is either clearing that liability or your Expense.

They are taxable; you would also use a Wage Garnishment or Net Pay Deduction, for the amount the server already got. You don't them to get the amount again. This offsets the initial Loan (other asset).

A business with mostly credit card activity tracks tips as income and expense for purposes of avoiding what would appear to be a huge discrepancy on your 1099-K.

Ask your own CPA about this.

A

arkvalleyinfoAuthor

Thank you for responding to my question. Also, I did forget to mention that I pay cc tips in cash to employees daily - so thanks for to picking up on that fact.

In concept, I understand what you're saying, but for practical reasons, something is still not adding up for me when I process the transaction/payroll. I am not balancing or clearing out my tips account for some reason. This is what I do (hope it's not confusing):

When I make a credit card deposit with tips into checking (increases checking/bank account), and based on what you said, for example

$100 in sales/ $20 in tips
- credit my sales acct. (income)
- credit my tips clearing account (bank - where it's held until I process payroll) - but it ends up with a negative balance; why? Is that correct?
-------------------------------------------------------
Now, when I receive my payroll report, I enter the following into my chk register (not general journal ) only the amounts from my payroll svc. - payable to my payroll service (EFT).

$1,000 Check amount = net pay

$1,500 Payroll gross wages (expense)
<$20> Tips clearing (bank) - since I've already paid that amount.
<$480> Payroll liabilities - taxes
$1,000 Net pay

But this where I'm having problems. My Tips clearing (bank) is not balancing; instead it's doubling in a negative balance. Am I supposed to credit another account when I make the initial deposit so I don't have 2 negatives in the TIPs clearing (bank)? Help! Thanks.

qbteachmt

"When I make a credit card deposit with tips into checking (increases checking/bank account), and based on what you said, for example

$100 in sales/ $20 in tips
- credit my sales acct. (income)
- credit my tips clearing account (bank - where it's held until I process payroll)"

This is a bit wrong already. If you intend to track tips as Liability, to be Cleared, it is:
Gross Sales Credits Income
Tips Earned Credits Liability
Tips Taken credits Cash Bank AND debits Other Asset for Employee Loan
Payments made by checks, cash, and Credit Card Debit Banking

Or, perhaps you are using "tips clearing account as Bank" to be Source of Funds taken; but you should be using a real Source of Funds, not a Clearing Bank for this.

"- but it ends up with a negative balance; why? Is that correct?"

Your 'bank" concept is Backwards. You have negative Asset instead of Positive Liability. Or, that is Tips Taken, not "clearing Liab." Taken as Cash = credit the bank type account where you manage Cash moving.

You don't seem to be tracking that their Taking of Tips is a Loan (other current asset) to be part of the Payroll as a Net wage garnishment Repayment process. You gave them money, already. That needs to show Repaid to you.

You didn't tell us if you are Not Intending to track Tips as Liability?

"Now, when I receive my payroll report, I enter the following into my chk register (not general journal )"

Then you use Banking menu > Write Check.

Debit Gross Wages
Credit Employee Loan for tips ran through Payroll this time (as the Net Deducted)
Debit Tips Liability for that same amount for the Gross amount taxed

Line 2 is going to compensate for the Tips taken as Cash already.
Line 3 is going to remove the Tips Liab that you Taxed.
They don't need to match to each other. Examples:

$100 tips taken = $100 tips taxed = Gross $100 in and Net $100 removed.

Or, you cannot do that entire $100 on one check cycle, because the person has taken too much in tips and their base rate doesn't cover taxes. That why you cannot always allow them to take All Tips. If there are $100 tips earned, but you Cannot let them take it all, since they will owe Taxes on it, you give them $70 tips advance as Cash, and hold the other $30 for taxes to compute on the $100. Then, Payroll Tips in and out might reflect:
$100 tips IN (clears the liability) and $70 Tips Out (clears the cash loaned) and there is a small difference that has increased their take home, as the leftover from tax withholding

"only the amounts from my payroll svc. - payable to my payroll service (EFT)."

Your example, restated and assuming there is no Liability accounting for Tips:
Sales Gross $120 Credit Income
Tips take from Cash will Credit Bank (till, safe, cash register)
Debits are Payments you got that date

Your Payroll example is missing the $20 Debit to Liability for Tips, the $20 repayment to you for the Cash they already got, or both. I am having to make some assumptions.

A

arkvalleyinfoAuthor

Thank you once again for responding and your explanation. I've reviewed what you said, but when I process my transaction, my balance is still off in the payroll/wages step. Also, I am planning on tracking Tips as a liability as I am tracking my sales separately from tips received.

Briefly: (this part seems to be okay - or, maybe not)

CR Sales income        $100
CR TIPS Liabilities (increase liabilities) 20
DR TIPS Loan (decrease assets) <20>
CR TIPS Clearing/Holding (increase cash bank)        20
DR Banking/Checking deposit (increases bank) Total: $120

In Payroll: Using Banking menu - Write checks to payroll service (example)

DR Gross Wages (expense)         $500
CR TIPS Loan (increase asset/tips paid back) <20>
DR TIPS Liabilities (decrease liabilities) 20
??DR TIPS Clearing/Holding (to clear cash bank) <20>
DR Payroll Liabilities         <100>
CR Banking (decreases bank)         Net Pay: $380

My TIPS Clearing/Holding account increases and isn't clearing. I'm still doing something wrong. Hope this is not driving you crazy; it seems to be driving me crazy. ;) Thanks for you help.

qbteachmt

"My TIPS Clearing/Holding account increases and isn't clearing"

Because you still have this Backwards. Work through it step by step. It isn't this hard, if you take it a bit at a time.

My changes to your listing:
CR Sales income        $100
CR TIPS Liabilities (increase liabilities) 20
<< These two lines, above, are going to be the Amount of Funds paid to you today by various methods>>
= DR Banking/Checking deposit (increases bank) Total: $120

Stop here. Does that make you happy and match reality? Let's keep working through the steps. This is the part you have backwards:

Debit Employee Tip Loan Other Asset 20 because you Gave them Funds (increases their Debt to you)
Credit the Safe or Cash Register 20 that is the Source of the Funds they took (decreases your Cash on hand)
= 0 or In Balance. Tips doesn't even come into play here, except as the Justification for the loan.

There is no Clearing or Holding involved. There is only Real Activity.

"In Payroll: Using Banking menu - Write checks to payroll service (example)

DR Gross Wages (expense)         $500
DR TIPS Liabilities (decrease liabilities) 20"
= stop here to see this is Gross Taxable; that should make you happy and match your reality.

>>??DR TIPS Clearing/Holding (to clear cash bank) <20>
This DOES NOT EXIST; there is no Cash Back to Cash Bank. The Repayment of the loan will result in Less Takehome this pay cycle, not Cash back.

"DR Payroll Liabilities         <100>" <== This part is backwards.

Debit Employer tax expense and CREDIT payroll liability for Employee + Employer shares; later, paying liabilities will Debit PR Liab and Credit Checking. Credit Liability is in lieu of Credit to bank = not paid yet.

If the payroll service takes your money right away, your payroll entry for this topic should never include Payroll Liabilities at all. Your entry will simply Debit Gross Wages and Debit Employer Taxes and Debit Tips Liability. Everything else would be the Credits. We didn't review this detail for holding and paying payroll tax liabilities.

CR TIPS Loan (increase asset/tips paid back) <20>
CR Banking (decreases bank)         Net Pay: $380 <== which should have been $400, but they already got $20 of that

I think that's it. I prefer an Excel worksheet, for math :)

C

cadkeller

Question on this...are the tips not included with the gross wages? Shouldn't wages reflect this amount? If they go to a liability account how do they get caught for the yearend W-2's. You say debit Gross wages $500, DB Tips Liability $20 and credit everything else which I assume is the employees payroll taxes.

L

lightwalkersvcs

I am having the same problem. Cash tips never get deposited, the employees takes at end of shift. The cash tips are reported to PR company. They are included in gross wages (separate line) taxed and then of course as a deduction to net pay. My journal entry is always off by the cash tips, leaving me with a credit to distribute.

M

mac5burro

I'm having a similar issue. My p & L says I have tons of $$$ which I do not and I'm convinced its because I'm not properly tracking the tips. AAAGGHHH.

Example $200 in sales ($100 cash/$100 credit card)

recorded as $200 deposited into cash drawer. credit cards clear the next day ($100 sales $50 tips)

$150 goes into bank account.

$50 left in cash drawer but my staff took those $50 already. How do I show the debit?

qbteachmt

"Example $200 in sales ($100 cash/$100 credit card)"

Do not confuse Payment Type with Sales.

"recorded as $200 deposited into cash drawer."

Sales credit is All Sales, or are Tips in that value? Because you expect that Tips are in the Payments. That is where you got confused.

"credit cards clear the next day ($100 sales $50 tips)"

Then it is Not $200 of Sales. And this only totals $150; what happened to that difference? Did you mean:

$150 Sales income <== these Three Lines offset each other

$50 Tips Liability <== these Three Lines offset each other

$50 Taken from Cash Till by Servers <== these two lines Offset each other

which is matched to the entry for $50 Borrowed by the Servers as Employee Loan (other current asset) <== these two lines Offset each other

And then $200 as paid by checks, cash and CC charges as Settlement <== these Three Lines offset each other

Plus, you usually need an Over/Short entry as linked to income

And you might need a Sales Tax Liability item

"'$50 left in cash drawer but my staff took those $50 already. How do I show the debit?"

That is Employee Loan. It is Other Current Asset. Like this:

They Borrowed $50.

Then, tips through payroll is Gross $50, clearing the Liability account. It gets Taxed. In your business where you allowed them to Take Money already, then you also need the Loan Repayment item, as Employee Loan repayment Deduction, like a wage garnishment, to clear that Other Current Asset for $50, to avoid it adding to take home. They Already Got it.

yes, this is where people often get it wrong: "Unless you’re doing a JE to IMMEDIATELY transfer the tip dollars received to a liability account (I.e. Tips Payable), tips should not be recorded as income to the company and show up on the P & L."

You won't JE tips. You also don't mix Tips into Sales. A lot of people never considered that the Money is not Sales. The Money is the Banking. Not the sales.

Here are Two Bookmarks for Summary Sales, that helps. There is a blog for Desktop, and a Video for QB Online:

Desktop Sales Summary

QBO Sales Summary

N

NeshInPA

Hi: We just switched to a new POS system. I just want to make sure this is correct. We have our credit card tips go in as Income because we do not cash them out after every shift. Our tips go on their paychecks so these tips show up in Wages, Tips, etc. on their W-2s. Is there anything else I have to do? Thank you very much.

C

Carneil_C

Thanks for dropping by the Community, @NeshInPA. I'll make sure that you'll be able to find another way to handle your credit card tips in QuickBooks Desktop.

Yes, I agree that you can have your credit card tips go in as income and make them show up in Wages and Tips on their W-2s.

Additionally, I recommend checking out the guide here if you’re using QuickBooks Desktop payroll: Report tips in and out on employee paychecks

Moreover, feel free to visit this article about using reports to track specific aspects of your business in QBDT: Understand reports

Please feel free to get in touch with me here for any additional questions about handling tips in QBDT. The Community always has your back. Have a great day!

C

COTkp

Hello,

I have a similar question regarding Tips being paid via credit card, and how to record the entry:

Tips are received on the Credit Card Terminals

We are tracking these tips in a Liability Account - to be reported to Payroll Service, added to Gross Income, Taxed, then paid out

When reported to our outside payroll service, if we debit the Tip Liability account, how do we also get this recorded in Gross Salary account (if we debit Gross Salary, what is the credit)? Would need this to make sure our Expense matches total of W-2's at year-end.

Thank you!

S

Sara08

It depends how you are paying the tips out. Are you paying the employees out daily or on their check?

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