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taylorseo5361-gm
July 6, 2022
Question

Why is the paycheck tip included in the payroll expenses?

  • July 6, 2022
  • 1 reply
  • 0 views

I am running a restaurant with servers getting tips from customers. The business collects credit card tips and distribute to each server on the payday.

Paycheck tips are added on the paycheck. But I noticed that running the payroll with the paycheck tips does not reduce the tips liability. But rather, it counts as a payroll expense while it shouldn't. 

Tips liability on P&L keeps accumulating while tips are being distributed to employees rather than offsetting each other.

What is it that I am missing here?
Thanks.

1 reply

J
JamaicaA
July 6, 2022

I’ll share with you a few details about handling and recording payroll tips, @taylorseo5361-gm. I’d also be glad to help you change the account mapping for these tips.

 

I appreciate you clarifying your concern about the paycheck tips. These are recorded in QuickBooks Online using the default payroll expense account. The payroll settings let you see how they are classified.

 

  1. Go to the Gear icon and select Payroll Settings.
  2. Click Accounting under Preferences.
  3. Under Accounting Preferences you can verify and check your accounts.
  4. Click OK.

 

You can pull up the Profit and Loss report to track your payroll transactions and pay tips added for your employees. Here's a reference you can check if you want to manage your payroll accounting settings: Change your accounting preferences in QuickBooks Online Payroll.

 

The current liability account function as a clearing account for tips. You can record the tip as debit when you pay out tips, and credit in the tip liability account when you received the credit card payments. If there is a balance in the account, it’s either you haven't collected from the credit cards yet or you haven't distributed all the tips. This won’t affect your profit or loss, but you need to track them for each employee to report properly to the IRS.

 

If you want to record the tips to a different account, go to the Payroll Settings and follow the instructions below: 

 

  1. Go back to the Gear icon and select Payroll Settings.
  2. Look for Preferences and click on it, then select Accounting Preferences.
  3. Go to the Wage Expense Accounts section, then click the drop-down list for the tips, and then select the liability account that you want.
  4. Click OK. 

 

Please know it would be best to consult an accounting professional for other possible options. They can guide you on what account to use when setting up tips in QuickBooks. 

 

I've got these handy articles that you can read about:

 

 

In case you need some help articles for your future tasks, please refer to this link: Employees and payroll taxes.

 

Loop me in if you have additional paycheck tips or payroll concerns. I'm always willing to assist you further. Take care.

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