employee with negative paycheck

employee with negative paycheck. because the employee receives tips a negative paycheck was calculated even. i zeroed out the fed and state withholding and it is still negative. i am afraid to adjust the medicaid or fica.

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    Sole Property does not mean "in their possession."

    Everyone that is due Wages does not get to take them in full. The same is true for tips. If you earn $100 in tips, I do not have to give you $100, because as your employer, I have to follow payroll rules and meet the fiduciary responsibilities for withholding and forwarding those funds on your behalf.

    If I holdback from your tips and Do Not send in your withholding, that is when you can declare I have tried to convert it to my own property. This is why employers go to court and get fined and even go to prison: for NOT meeting their Payroll requirements.
    • Giving your employer money for taxes.
      Your regular
      pay may not be enough for your employer to withhold all
      the taxes you owe on your regular pay plus your reported
      tips. If this happens, you can give your employer money
      until the close of the calendar year to pay the rest of the
      taxes.
      1.
      All taxes on your regular pay.
      2.
      Social security and Medicare taxes or railroad retire-
      ment tax on your reported tips.
      3.
      Federal, state, and local income taxes on your repor-
      ted tips
      Any taxes that remain unpaid can be collected by your
      employer from your next paycheck. If withholding taxes
      remain uncollected at the end of the year, you may be
      subject to a penalty for underpayment of estimated taxes.
      See Publication 505, Tax Withholding and Estimated Tax,
      for more information
      It is the servers responsibility to pay
    • if not enough taxes were taken out..the employer has done all that they can do at that point
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    "if not enough taxes were taken out..the employer has done all that they can do at that point"

    The original question, to which we were answering, has to do with Negative Paycheck.

    The Employer can, in fact, pay the requried amounts and then get repaid by the employee. Rhondacdan, even your own text points out this option: "If this happens, you can give your employer money until the close of the calendar year to pay the rest of the taxes."

    I pointed out this reimbursement can be done at any time and even by personal check from the employee.

    I really think you are confusing two unrelated issues.
    • Tips that are taxable wages.
    • Tips where an employer intends to keep them as part of the business income.

    It also is important to understand that Tips and Wages are impacted by State rules; not just Federal.
    • No, you were saying that an employer can deduct the taxes from tips if there is a negative paycheck.....a "tip" is from an customer to the server, a gift,  and has nothing to do with the employer...unless there is a tip pool, or the gratuity was added, which is considered wages......my original comment was that an employer can not take a servers tips to use to cover taxes, they can give money to the employer or risk penalties for not estimating enough taxes taken out...not the employers problem
    • RE: "a "tip" is from an customer to the server, a gift,  and has nothing to do with the employer"

      It does, actually, because the employer is required to report the tips and to withhold employee taxes and to pay company payroll taxes on the tips.  So, the employer has to keep track of the tips as they would hourly pay.
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    You can't zero out the taxes.

    You also shouldn't let them take all their tips, if this situation occurs. You must hold back some tips against their tax liabilities.

    You will have to loan them enough to cover the shortfall. You don't have to wait until pay date to collect. This is not a payroll issue and they can repay you using a personal check, even.

    • You can not legally keep any of their tips.
    • Yes, you can hold back the tips to cover the taxes they create.  Or, if you prefer, you can pay the tips and tell the employee they owe you money for the resulting taxes and have then pay you the money.  It's sort of the same thing, though.
    • Retention of Tips: A tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit. The FLSA prohibits any arrangement between the employer and the tipped employee whereby any part of the tip received becomes the property of the employer. For example, even where a tipped employee receives at least $7.25 per hour in wages directly from the employer, the employee may not be required to turn over his or her tips to the employer. (US Dept. of Labor) Fact Sheet #15

      Giving your employer money for taxes.
      Your regular
      pay may not be enough for your employer to withhold all
      the taxes you owe on your regular pay plus your reported
      tips. If this happens, you can give your employer money
      until the close of the calendar year to pay the rest of the
      taxes. IRS publication 531
    • Yes, that is all correct.  Do you have a question about this?
    • rhondacdan never actually asked a question.
    • I was responding to a question that was asked
    • And you don't loan them anything...you can keep records of the negative amount "they" owe, and it is the responsibility of the server to pay this, if the server doesn't , then the server faces the consequences, not he employer
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    Knowing nothing about tips, here's a suggestion:

    1. Calculate the check as you normally would, with all taxes deducted and a negative balance.
    2. If you do not already have one, create an other current asset for Employee Loans/Advances.
    3. Create a Payroll Item with the same name and link it to the asset created in #2.
    4. On the paycheck, in the "other payroll items" section, enter the payroll item created in #2 in a positive amount to counter-balance the negative amount of the paycheck.  The amount of the paycheck should now be zero.
    5. On the next paycheck, enter the same item as in #4 but in a negative amount.  This should result in the balance of the asset account you created/used in #2 being reset to zero.
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    "any part of the tip received becomes the property of the employer"

    Not any one of us suggested tips would be property of the employer. I believe we all discuss this as Liability/Asset accounting, to track amounts owed between the employee and the employer.

    This is exactly what happens on paychecks.

    There is no standard that each server handles their own bank, for example. Tips are not always in the hands of the server and are not paid out to that server, either by cash or via a paycheck, without consideration for payroll requirements.

    Retention of tips does not = employer property. It should = employee withholding.
    • So do explain "sole Property"
    • If a server gets their tips at the end of every shift, what then, if there are no tips being held to cover taxes when paychecks are issued? A tip is the "Sole Property" of the server
    • The wages an employee earns are theirs as well.  That does not mean you have to pay them out each day or that you cannot withhold taxes on them.  Tips are exactly the same as their hourly wage in this way.
    • I am not saying that tips are not wages, or that you can't withhold taxes on them. I am saying that an employer cannot use the tips to cover taxes, a server can give the money to the employer if there isn't enough from hourly wages to cover the taxes.
    • Yes, that's right. And the employer also does not need to distribute the tips each day, especially in the case of credit card tips.
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    This has gone far beyond the original question and is no longer a QB question, either.

     

    To summarize,

     

    The IRS has "ordering rules" for how to apply available funds to payroll liability issues. For the original question, zeroing out income tax was not the right solution.

     

    Whether an employer is going to pay the employee's share of liabilities to be reimbursed later is a bit beyond the scope of this forum or using QB. It really is an employer-employee issue.

     

    The IRS even has a "contract" process by which the employees get training to understand their responbilities and commit to following the rules that will help.

     

    A workplace rule or human resource issue is a bit beyond "How do I do this in QB?"

     

    I appreciate that Rhonda brought up an issue, but this isn't the place to teach the intricacies of IRS regulations.

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