Paying Social Security Tips

Background
Setting up a Social Security Tip Wage
Paying Employees Tips

Background

AccountEdge has the ability to set aside taxable social security tips so that when you run your W-2 and 941 payroll forms it properly allocates the tips into the correct boxes. This support article will explain how to set up a wage for tips and how to handle a couple of different scenarios.

Setting up a Social Security Tip Wage

To begin with, you need to create your Social Security tips wage. This wage will not actually show up as a positive dollar value on a paycheck because it is both added and removed. If you attempted to write a check using only this wage it would actually create a negative paycheck.

To setup this initial wage:

  1. Open the Payroll module
  2. Click on Payroll Categories in the upper right
  3. Click New at the bottom left corner
  4. Enter the name for the tips wage (mine is just called SS Tips)
  5. If desired check off the box to set a specific expense account for this wage
  6. Check the box next to Exclude from Net Pay (Tips, etc)
  7. Select the top option for Reported Tips
  8. Click the employees button at the bottom left and check off any employees that this wage applies to

ss_create_wage.png

Paying Employees Tips

As noted above, when you create a payroll category for Reported Tips you are not actually giving the employee money for these tips - you are only accounting for the taxes associated with them. This would be the case if you were running a restaurant and your employees were actually given cash tips. You wouldn't actually be giving the employee any money, you would just be documenting the amount they made in tips so that taxes were taken out.

In the example below, you can see that the check is actually negative because I'm not giving the employee any money - they are just paying the taxes for cash they received.

negative_paycheck.png

If you are paying the employee for the tips (for example, if you actually collect the tips and then distribute them out through a paycheck) you would need to setup an additional wage to pay them these tips. This way, you would be able to both pay them and have the tips map correctly into the box 5B on the 941 and Box 7 on the W-2. Additionally, we need to make sure that we aren't taking additional taxes out when paying the employees so the wage through which you are paying them needs to be exempt.

To setup this wage:

  1. Open the Payroll module
  2. Click on Payroll Categories in the upper right
  3. Click New at the bottom left corner
  4. Enter the name for the tips wage (mine is just called SS Tips Paid)
  5. If desired check off the box to set a specific expense account for this wage
  6. Click the Exempt button and check off the top box to exclude this wage from all taxes
  7. Click the employees box and check all employees that should have this wage associated

ss_tips_paid.png

Now when processing payroll you want to enter the dollar figure of the tips they earned in box the SS Tips Wage and the SS Tips Paid wage.

The employee will be taxed only on the SS Tips wage amount, this figure will be properly mapped into the right boxes on both the W-2 and 941 forms.