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Tips Setup

Overview

This article provides guidance on setting up and managing tips in ProPay. ProPay tracks both cash tips and charge tips separately, then reports the total tips on Form 941 and W-2 forms.

Setting Up Tips

  1. Go to Employer > Employer Setup > Screen 2.
  2. Locate the checkbox labeled Will your payroll Include Tips?
  3. Check this box to enable tips management in your payroll system.

Entering Tips During Paycheck Processing

When processing paychecks, you'll find the TIPS field in the Earnings section:

  1. Look for the TIPS field in the Earnings section.
  2. Enter cash tips in the Cash Tips field.
  3. Enter charge tips in the Charge Tips field.

The system will automatically calculate the total amount of these two types of tips.

Important: The Total Tips field is the only field reported on Form 941 and W-2 forms.

How Tips Are Calculated

ProPay processes tips as follows:

  • Total tips are automatically added to gross wages for tax calculation purposes
  • Cash tips are deducted from the net amount on the employee's paycheck (since the employee already received this cash from customers)
  • Charge tips are added to the employee's net amount on their paycheck (since these will be paid by the employer)

Tips Entry Screens

ProPay provides two methods for entering tips:

Payroll calculation screen

Use this screen for individual paycheck entry. The TIPS fields appear in the Earnings section.

Batch mode screen

Use this screen for processing multiple paychecks at once. The TIPS fields are displayed in the batch entry grid.

Troubleshooting

Issue: Tips fields not appearing during paycheck entry

  1. Verify that the Will your payroll Include Tips? checkbox is selected in the Employer Setup Page 2.
  2. Confirm you are looking in the Earnings section, not the Deductions section.
  3. Exit and re-enter the paycheck entry screen to refresh the display.

Issue: Tips not appearing on W-2 forms

  1. Verify that tips were entered in the TIPS fields (Cash Tips and/or Charge Tips).
  2. Check that the Total Tips field shows the correct amount.
  3. Ensure the employee's W-2 has been generated for the correct tax year.
  4. Print a test W-2 to verify Box 7 (Social security tips) displays the total tips amount.

Issue: Incorrect net pay calculation

  1. Verify cash tips are being deducted from net pay (employee already received this cash).
  2. Verify charge tips are being added to net pay (employer will pay this to employee).
  3. Check that tax withholding is being calculated on the total tips amount.
  4. Review the paycheck detail to ensure tips are included in taxable gross wages.

Issue: Tips not appearing on Form 941

  1. Confirm tips were entered for the correct quarter.
  2. Verify the Total Tips field contains the combined cash and charge tips.
  3. Review the 941 form preview to ensure Line 5b (Taxable social security tips) includes the tips amount.

Tips and Minimum Wage

ProPay includes a feature to help ensure tipped employees meet federal minimum wage requirements. If enabled in Employer Setup Page 3:

  • ProPay warns you when a tipped employee's gross wages fall below the federal minimum wage
  • The system asks if you want to increase the employee's pay rate for that particular check to meet minimum wage requirements

See Tips against minimum wage for more information.

Important Notes

  • Employees are required to report all tips to their employer if total tips exceed $20 per month
  • Employers must withhold income tax, Social Security tax, and Medicare tax on reported tips
  • Tips are reported in W-2 Box 7 (Social security tips) and included in Box 1 (Wages, tips, other compensation)
  • Keep accurate records of both cash and charge tips for each employee
  • The IRS may require additional tip reporting for large food and beverage establishments

See Also

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