Tips and Payroll

How do you pay your drivers and inside staff? Do you tip out in cash or put on a check? If check how do you handle payroll taxes?

I paid tips in cash nightly off CC tips. For payroll I used QB payroll and they had a pay type that added the tips to an employee check to calculate taxes, then reverse to show that the employee already received the tips

I guess my concern is having to match certain taxes when I’m doing payroll. My drivers are bringing in $450 per week in tips

I would not use that as an excuse to not add to checks instead of paying out in cash. At the end of the year you want to have at least your reported credit card tips trace back to your payroll. I switched to adding tips to checks after covid and it has been SO much better since tips were approx $5K/week. Our credit card tips were always reported even when we paid them out in cash nightly in the past. My payroll company figures it out…i just report hours and tips.

You should be aware that the tax law is written in an incredibly favorable way for Restaurants to encourage tip declaration. A Tip Tax Credit can be claimed with Form 8846 when you are filing your Federal taxes. This returns all the FICA match an employer pays on tips above the minimum wage level of $5.15/hour back to you in the form of a tax credit - not a deduction, a credit - you get all the FICA tax match back.

Here is the IRS form:

Here is a CPA website that give a brief explanation: Restaurants Can Save Big by Claiming the FICA Tip Tax Credit - Anders CPA

1 Like

not to mention that if you applied for ERTC tips would have been included

I pay out all tips in cash at the end of each night, but deduct the taxes for the tips from their paycheck at the end of the period. The tips are reported in the check stub so that everything is clearly reported to the IRS, but the system is setup that they don’t get paid out again. Brad is right about the tip credit.