Setting Up Reported Tips in Patriot Software
Background
When you have employees who receive tips, you will need to report their tips in their payroll so that proper income tax can be withheld on those earnings. For more information about paying tipped employees, see our blog articles What are Reported Tips? and When Employees Receive Tips.
Using Tips in Patriot Software
There are two kinds of tips that you can use when paying your employees. These two versions of tips are already set up as default Money Types in your Patriot Software account under Settings > Payroll Settings > Hours & Money Types.
1) Tips – Already Paid: Use this Money Type if the employee has already been paid the tips. These tips will appear as taxable earnings, reported in Box 7 of the employee’s W-2, and income tax deductions will be withheld. These tips will not be included in their net pay.
2) Tips – Owed: Use this Money Type if the employee needs to be paid the tips (e.g., the tips were added to a credit card that the employee has not yet received). Similar to “Tips – Already Paid,” these tips appear as taxable earnings, reported in Box 7 of the employee’s W-2, and income tax deductions will be withheld. However, these tips will be included in their net pay.
To include tips in a payroll:
- First, if you are going to be paying tips regularly in payrolls, you can mark these money types as “frequently used” on the Settings page so they always appear. Otherwise, you can still use them when you toggle the “Show All Pay Types” switch.
- Payroll > Run A New Payroll.
- For each employee who needs to have tips reported or paid, enter the tip amounts, either in “Tips – Already Paid” or “Tips – Owed.”
- Continue to add hours and any other necessary earnings and continue to the next step of payroll.
Note: The employee’s gross wages must be greater than their reported tips so there is enough money to withhold taxes. If the amount of tips exceed gross wages, this will cause a negative net pay, and the payroll will not be processed.