2020 1099k less than total sales?? (Covid cash drawer deficits and more)

[twentysixcafe]

Hi everyone,

At the risk of embarrassing myself I'm going to share some information that I am hoping folks might provide some insight about. It's about the 1099K, low number of cash sales since March (Covid), tip out / payouts out of the cash drawer, and total sales.

When Square deposits a day's worth of sales into our account, that includes the credit card sale amount and the tip amount, correct? This is done to assume that the business will give that tip money to the employee, right?

Do cash drawer deposits / pay-ins affect the total sales and/or cash sales for the day?

I am asking because of the following situation. Bear with me.

In the "pre-Covid" world, the business makes cash sales and credit card sales. Prior to March 2020, we would see...

1. Credit card sales that include a tip. Square gives the business the entire sale amount + tip amount. Employees take the tip amount out of the cash in the drawer at the shop. We start the day with $200 in the cash drawer and end the day w/ $200 in the drawer, after the following drama is done.
2. Cash sales for a day would exceed the total credit card tips for the day. So, even after employees take some cash out for credit card tips, there would be more than $200 left in the cash drawer at the shop. Every dollar over $200 is remaining cash from cash sales from the day minus whatever employees took out for credit card tips.
3. At the end of the day, we would have more than $200 cash in the drawer. We take every dollar over $200 and deposit it into the bank, as Sales. This leaves $200 in the drawer for the following morning.
4. Within 24-ish hours, Square deposits the total amount of credit card sales (including credit card tips) into our bank account.

So, I recognize we have a couple issues in the scenario above. First, tips should really be counted as employee income and reported as such. Second, the business is accounting for the Square deposit as Sales, and so the business could be paying tax on the sales + tip money. (!) We have addressed this and the right taxes have been paid.

That aside, the bigger issue is the following. After March, we see...

1. Far fewer cash transactions due to customer behavior under Covid.
2. Credit card sales that include a tip. Same as before, Square gives the business the entire sale amount + tip, assuming that the business will give the credit card tip amount to the employee. The employees "get" this money by taking cash out of the cash drawer at the shop.
3. Cash sales do not exceed the credit card tips for the day. So employees are taking out more cash out of the drawer for credit card tips than what is coming into the drawer via cash sales.
4. At the end of the day, we would have less than $200 cash in the drawer because of #1 - 3. So we take the deficit amount out of the checking account and "top up" the cash drawer so that it is at $200 for the start of the following day.

I was expecting that the Sales income deposited into our account and the amount of our 1099k would differ by approximately the amount of money withdrawn from checking to keep the cash drawer afloat. Not only does it not, but we aren't even close!

Oh what might I have done? Thanks for any insight, corrections, or suggestions.

[AshleyK]

@twentysixcafe I'm going to give you a summary of how our reporting works below. 🙂

Square deposits all credit card payments and tips each night. Cash sales are included in a gross sales summary, but paid in/out for cash drawers is not included in those reports. Only cash sales or refunds.

If you meet the requirements to receive a 1099-K form, Square reports your annual gross card payment amount collected, including revenue from card payments that were refunded. Cash and Other Tender payments are not included in the total we report on the Form 1099-K. For more information on what’s included in the gross processing volume, please visit the IRS website.

Refund Reporting
Because of this requirement, the amount shown on this form will be different from the amount settled into your bank account. This is because you may have had refunds, chargebacks, or holds, and Square’s fees were deducted before funds were transferred to your bank.

Transaction Timing
The transaction date is the date in our system that the transaction took place, which is based on a standardized time known as UTC. Your online dashboard shows your transactions in your local time, so there may be small variances if you have transactions that occur between 5:00 pm and midnight in your local time zone.

1099-K Qualifications
For most states, we are required by law to provide a 1099-K to account holders who process over $20,000 in credit card sales and more than 200 credit card payments within the calendar year. However, some states have different qualifications that require Square to issue a Form 1099-K. Square is required to issue a Form 1099-K and report to the state if your taxpayer information is associated with:

• The District of Columbia, Virginia, Maryland, Massachusetts, or Vermont and $600 or more is processed in card payments.
• Illinois and more than $1000 in processed card payments and more than 3 processed transactions.
• Missouri and $1200 or more in processed card payments.

Tax law requires we provide qualifying accounts with a Form 1099-K before January 31st of the following year. The US state your taxpayer information is associated with will determine your qualification for a Form 1099-K.

If you qualify to receive a Form 1099-K, you can download it from your Square Dashboard. Your gross sales are listed in Box 1 on the Form 1099-K.

Whether or not you qualify for a Form 1099-K, your yearly payment details can be found in Reports from your Square Dashboard. Select Last Year in the date selector, then choose to view the Sales Summary, Payment Methods, and Taxes sections.