Reporting Tips as Wages in Dynamics GP
Posted by Jen Bieker on March 5, 2014
According to the IRS, service charges added to a bill or fixed by the employer that the customer must pay, when paid to an employee, will not constitute a tip but rather constitute non-tip wages. These non-tip wages are subject to social security tax, Medicare tax, and federal income tax withholding. Common examples of service charges (sometimes called "auto-gratuities") in service industries are:
• Large Party Charge (restaurant)
• Bottle Service Charge (restaurant and night-club)
• Room Service Charge (hotel and resort)
• Contracted Luggage Assistance Charge (hotel and resort)
• Mandated Delivery Charge (pizza or other retail deliveries)
Dynamics GP does not provide a standard method to handle tips that need to be reported as wages. One method that can be used is to set up a reported tips pay code to track the tips that must be reported as wages (for example, use the code TRAW to indicate Tips Reported As Wages) and use the method How to Handle Tip Reporting in Dynamics GP for normal tip reporting.
Also, set up a pay code with a Type of 'Other' that will be used every month or every quarter to transfer the amounts from the tipped pay code into a wages pay code.
In addition, set up a Fixed Amount deduction that will be needed so that net pay in the Manual Check process will net to zero.
To handle the transfer of wages, use the Manual Checks: Beginning Balances process, first prepare a report that shows the total paid to each employee using the Pay Code that you set up to track Tips that should be reported as Wages (i.e., the TRAW pay code transactions). The report should include the taxes that were calculated on the transactions. The Earnings Summary report (Reports > Payroll > Wage and Hour Reports – Earnings Summary) can be used if all of the tips need to be reported as wages instead of tips.
However, if you have employees who earned tips that need to be reported as tips and other tips that need to be reported as wages and you were using multiple pay codes to track these, you will need to determine how much tax was applied on each pay code. To do this, you can print the Earnings Summary report plus the Employee Wage and Hour Report (Reports > Payroll > Wage and Hour Reports – Employee Wage and Hour), which will show the total dollars and hours tracked for each pay code in a date range. This will not show the taxes, but can be used to prorate the taxes on tips shown on the Earnings Summary to each tips pay code on the Employee Wage and Hour Report.
Next, go to the HR & Payroll area page, Transactions section, and click Manual Checks. Be sure to select the Beginning Balance radio button and then enter the Employee ID and other information. Then click the Transactions button. By selecting Beginning Balances, no distributions will be transferred to GL and no checks will be transferred to the checkbook.
You will need to enter the following transactions for each employee:
1. A negative amount Pay Code transaction using the Tips Reported As Wages (i.e., TRAW) pay code for the amount origianlly paid under that pay code.
2. A positive amount Pay Code transaction using the Other type pay code that you set up for the transfer, (i.e., T-TO-W)
3. A transaction type FICA Soc Sec/Tips with a negative amount equal to the FICA Soc Sec Tax on Tips and a negative Taxable Wages amount.
4. A transaction type FICA Medicare/Tips with a negative amount equal to the FICA Medicare Tax on Tips and a negative Taxable Wages amount.
5. A transaction type Federal Tax/Tips with a negative amount equal to the Federal Tax on Tips and a negative Taxable Wages amount.
6. A transaction type Federal Tax with a positive amount equal to the Federal Tax on Tips and a positive Taxable Wages amount.
7. A transaction type FICA Soc Sec Tax with a positive amount equal to the FICA Soc Sec Tax on Tips and a positive Taxable Wages amount.
8. A transaction type FICA Medicare Tax with a positive amount equal to the FICA Medicare Tax on Tips and a positive Taxable Wages amount.
9. A deduction transaction type using the deduction set up for the Tips and Wages information that is a positive amount equal to the tips you are transferring to wages.
After the transactions are entered and saved, there will be a Gross Pay amount equal to the Tips To Wages pay code and a Net Pay amount equal to zero. Save the transactions to a batch and post the batch.
To make sure that the employee’s taxable information is correct, print the Earnings Summary report (Reports > Payroll > Wage and Hour Reports – Earning Summary) and compare to the report that you ran prior to the Manual Check process.
Written By: Georgia Stewart, Crestwood Senior Consultant