cash out for a "tip"

[Lynn_TRU]

Scenario: our charity thrift shop offers pick-up service for donations, and charges a pickup fee. We take along our Square Terminal for donors who wish to pay the fee via a card. (I've set up offline mode for it.)

Today I had someone who wanted to donate an additional amount on top of the standard fee - as a tip to us movers - because it was super heavy furniture. To be clear, it is for a provided service, and is not cash back going to the customer. (So it doesn't quite fit the scenario at https://www.sellercommunity.com/t5/Questions-How-To/Can-I-give-cash-back-on-a-credit-card-transactio... ). However, it's not profit for the business, and somehow that money should end up with the movers.

Any suggestions? The best I could think of - after getting back to the shop - would be to issue a "refund" on the transaction, routing the money to a gift card, and then give the gift card to the mover. But that's wonky.

[PartyManiaMD]

Is your payroll handled through Square? If so there is a Tip Option for transactions.

There's really not any other way to take a credit card tip and distribute it to the movers as tips are basically earned income as far as the IRS is concerned. If the thrift shop wants to eat the cost they could just charge the tip and then pay cash to the movers. Creates some wonky book keeping but that's honestly how I handle paying my delivery drivers per job as they are contractors and not on my payroll.

[TheRealChipA]

Hi @Lynn_TRU.  Do your employees get a paycheck, or are they volunteers?  If they are on the payroll, you can just add that to their paycheck as a “bonus” and that will keep everyone legal.  If you want to give them them the cash now, you can still add it to their paycheck as a “bonus” as well as an “advance” so that they aren’t paid twice.

If you were a for-profit business, you might have to worry about the fact that these card “tips” are taxable, but in your case that doesn’t matter, so don’t sweat it.  Of course, since the tip was put on a card, you will be out the card processing fees.  It would be up to you whether or not your employees had to eat that.

If you only have volunteers without payroll, just give them cash or write a check for the amount.  You’ll need to have them sign something for your accountant to do the proper bookkeeping entries.  Also, as your accountant will tell you, if your volunteers get more than $600 per year (as of 2023) in these tips, you’ll need to issue them a 1099 at the end of the year.

Just talk to whoever does your books and files your tax returns.  They’ll know exactly how they want you to handle it.  This is the kind of thing that is really outside of Square’s wheelhouse.