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W2 tips issue


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A first and a second (in more than 3 decades).

1.  Tips incorrectly handled for 2019 Q1 (at least from what the customer shared).  Deducted from net pay (tipped out each shift), but not added to income.  Employees did not catch this (and they likely would not, since the error results in more net pay since not enough taxes were withheld).  CPA (my customer) noticed on the Q1 941.  While annoying, and will cost the CPA some effort to fix, no real out of pocket cash loss for the employer or CPA.

2.  A customer, who prepares payroll for others, handled tips properly for 2018, but made a setup change BEFORE printing W2 forms, which caused the reported/declared tips to be "regular" other income.  W2s were given out with no reported tips.  Looks like a wash for tax liability, but still a bad deal as the employer is likely changing payroll providers (and dealing with and explaining to unhappy employees).

For this arena, I post this as something else to add to your check lists, to watch for cases where your client is a tipped employee, but their W2 has no SS tips shown.  (I have asked, but have not yet heard how the issue for number 2 was found.  I think it was likely an employee's preparer.)

For payroll preparers, a modest check list reviewed for every payroll run would have never let this error slip past.

I will be adding another warning routine to warn if deducted tips are more than declared tips, proving again more than half of my programming is adding warnings.

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