Taxes on tips

Thanks for bringing your question forward here in the Community, John Gooch.

I'm happy to provide some info so you're able to exclude taxes from tips in QuickBooks Online Payroll.

Many QBO Payroll users have created a "Tips Out" payroll item with a "None" tax tracking type. During payroll, your client will add this deduction to offset the taxable tips that an employee has already received directly. When running payroll, enter the employee's reported tip amount and then add the "Tips Out" deduction for the cash portion.  Here's how to get this set up:

1. Go to Lists > Payroll Item List.
2. Click the Payroll Item ▼ dropdown and select New.
3. Choose Custom Setup and click Next.
4. Select Deduction and click Next.
5. Name the item "Tips Out" (or a similar name) and click Next.
6. In the Liability Account dropdown, select the same account you use for "tips in" (this is often an expense or liability account for tracking tips).
7. In the Tax tracking type window, select None.
8. Click Next three times.
9. In the Gross vs. net window, select net pay and click Next.
10. Choose Finish. 

The following linked article provides additional info about paying and reporting tips.

Please don't hesitate to drop a comment below if you have any other questions. The Community always has your back!