If your employees earned tips during a pay period, you can add them to payroll yourself in your Collective dashboard. Recording tips in payroll keeps tax withholding accurate and gives you a clean record of tip income, which matters at tax time and for any tip-related deductions you may qualify for.
This article is for S Corp tier members who run payroll through Collective. You add tips per employee while reviewing your regular payroll, before you submit it. If you're on the LLC tier, payroll doesn't apply to you as the business owner, so this process isn't one you'll need.
Paycheck tips or cash tips?
The pay screen has two tip fields. Choosing the right one makes sure tips are taxed correctly and not paid out twice.
| Field | Use it for | What happens |
|---|---|---|
| Paycheck tips | Tips your business collected on the employee's behalf (for example, card tips) that you're paying out through their paycheck | Added to the employee's pay and taxed |
| Cash tips | Tips the employee already took home in cash | Reported so the right taxes are withheld, but not paid out again |
If you're not sure which type applies, reach out to your Collective team before you submit.
Add tips to your payroll
- Go to Payroll, then Overview, in your Collective dashboard. This is where your upcoming payrolls are listed.
- On your next payroll, click Review and run. The Review and submit payroll screen opens.
- Click Edit payroll at the bottom left. The Hours and additional earnings screen lists each employee's hours and pay for the period.
- Find the employee who earned tips and click the ⋮ menu on their row. A window opens called Update [name]'s pay.
- Under Additional earnings, enter the tip amounts. Use Paycheck tips for tips you're paying out through payroll and Cash tips for tips the employee already received in cash. You can fill in one or both.
- Check Gross pay at the bottom of the window. It updates as you type, so you can confirm the new total before saving.
- Click Save.
- Repeat steps 4 through 7 for each employee who earned tips this pay period.
- Click Review payroll at the bottom right. Taxes and totals are recalculated with the tips included.
- Review each employee's gross pay and taxes, along with the debit amount at the top of the screen. The Employee take home tab shows what each person will receive.
- Click Submit payroll before the deadline shown at the top of the review screen.
Tips need to be entered before you submit. Once a payroll is submitted, you can't add tips to it.
Good to know
- Tips are entered each payroll. Amounts don't carry over from one pay period to the next, so add them every time tips were earned.
- This applies to W-2 employees. Contractors are paid through a separate flow and don't use this screen.
- This covers regular payroll. If you need to add tips to an off-cycle payroll, reach out to your Collective team.
- Made a mistake before submitting? Click Edit payroll again, open the employee's ⋮ menu, update the amount, then click Save and Review payroll.
Next steps
For more on how tip income may qualify for a deduction, see No tax on tips deduction for S Corp owners. If you have questions specific to your business, reach out to your Collective team. They're here to help.
The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice.