Cash tips are an important part of many service industry workers' income, and they must be handled appropriately to ensure accurate reporting and compliance with tax regulations. Worker tips are most commonly received through payroll or in cash form. When a worker receives cash tips over $20 in a given month, those tips must be reported with all necessary taxes withheld to remain in compliance.
It is important to note that tips paid through payroll are handled a bit differently than cash tips. Tips paid through payroll are added as a wage type and taxed as regular wages. However, when a worker receives cash tips, those must be added to the payroll as wages, taxed as wages, but then removed from the net pay to ensure the worker is not double paid.
When a worker receives cash tips, they can expect to see the following on their pay stub:
- Wage line item for Cash tips
- These wages will be taxed accordingly
- Deduction line item for Cash tips already paid
- This will ensure the worker is not double paid for cash tips earned.
If an employer needs to set up Cash tips in their Salsa payroll, please contact Salsa Support for additional assistance.
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