How To Account For Social Security And Medicare Tax On Unreported Tip Income

If you work in an industry where it is customary to receive a portion of your income from customer tips, you are required to pay Social Security and Medicare taxes on those earnings. However, it is only possible to pay these taxes during the year if you report your tip income to your employer. If you receive cash and charge tips of $20 or more per month from any one job, you are required to report these to your employer. If you did not report all of these tips to your employer, you are required to report and pay the additional Social Security and Medicare taxes that should have been paid on these unreported tips. This you do as follows:

• You must complete Form 4137, Social Security and Medicare Tax on Unreported Tip Income. This form is used to calculate the tax in these unreported tips.
• You report the tax figured on Form 4137, on your Form 1040, and you must attach Form 4137 to your tax return.

If you have allocated tips, these would have been shown separately in box 8 of your Form W-2, and would not be included in box 1 with your wages and reported tips. You must report your allocated tips as follows:

• Add the amount in box 8 of Form W-2 to the amount in box 1, and report the total as wages, on line 7 of Form 1040.
• You must complete Form 4137, and include the allocated tips on line 1.

The primary objective of this article is to empower taxpayers to learn to do their own taxes. For information on how to report all taxable income, grab yourself a copy of “Doing Your Own Taxes is as Easy as 1, 2, 3,” ($6.98) on

Milton G Boothe is an IRS Enrolled Agent with over twenty years of tax and financial accounting experience, including several years at PricewaterhouseCoopers. He is also a British certified Chartered Accountant. He is currently employed in private tax practices where he helps people resolve their tax problems, minimize their taxes, and routinely represents the interests of taxpayers before the Internal Revenue Service. As an Enrolled Agent (EA) Boothe is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the IRS for audits, collections, and appeals.
Milton G Boothe is also the author of several tax publications, wherein he encourages people to empower themselves by learning to do their own taxes.

Subscribe to TaxConnections Blog

Enter your email address to subscribe to this blog and receive notifications of new posts by email.