Form 4137 Helps to Determine Social Security and Medicare Tax on Unreported Tip Income

Taxpayers who earn tips are required to report all tip income each month and pay the federal taxes associated with this income. Federal taxes due on tip income include:

  • Social security tax
  • Medicare tax
  • Additional Medicare tax
  • Federal income tax

Your employer should withhold the appropriate taxes on the tips you report (assuming you report an amount equal to 8% or more of your total food & beverage sales). Depending on your employer and the state you live in, state income taxes may also be withheld.

If you have tip income that exceeds the amount reported by your employer, you must file Form 4137, Social Security and Medicare tax on Unreported Tip Income to calculate tax due on this income.

You must also file this form if Box 8 of your W-2 shows tips allocated to you based on your food and beverage sales totals. If there is a non-zero amount in Box 8 then you must include this amount in reported income and pay taxes on it unless you have records to support the fact that your unreported tip income was less than the amount shown.

Important: This form is used to figure the amount of tax due on your unreported tip income (including allocated tips from Box 8 of your W-2). Filing this form will ensure that your tip income and the tax you pay on it is included in your social security record, which will govern how your benefits are calculated when you begin claiming social security retirement benefits. However, you must still include the unreported tip income from Form 4137 on your tax return (Line one of Form 1040).

Reporting tip income properly is your legal responsibility. Failure to report tip income to your employer appropriately and on time can result in penalties of up to 50% of the amount of tax due (social security tax, Medicare Tax and Additional Medicare Tax, but not federal income tax).

If you are still not sure whether you are required to file Form 4137 or you do not understand how to report and pay taxes on tips, you may wish to review IRS Publication 531, Reporting Tip Income.


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