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You must file Form 4137 if you received cash and charge tips of $20 or more in a calendar month and didnt report all of those tips to your employer. You must also file Form 4137 if your Form(s) W-2, box 8, shows allocated tips that you must report as income.
Reporting tips on individual income tax return Any tips that the employee didnt report to the employer must be reported separately on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to include as additional wages with their tax return.
If an employee fails to report tips to his or her employer, then the employer is not liable for the employer share of social security and Medicare taxes on the unreported tips until notice and demand for the taxes is made to the employer by the IRS.
You must pay Medicare and Social Security taxes on unreported tips, so they must be reported on Form 4137 if your employer hasnt already withheld taxes from your income to cover these tips. Form 4137 calculates the Medicare and Social Security taxes you would owe.
If you dont report tips to your employer as required, you may be subject to a penalty equal to 50% of the social security, Medicare, Additional Medicare, or railroad retirement taxes you owe on the unreported tips.
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Your employer will also report this unreported tip income on your W-2, Box 8 (Allocated tips). Report allocated tips on your return unless exceptions apply.
To figure the social security and Medicare tax owed on tips you didnt report to your employer, including any allocated tips shown on your Form(s) W-2 that you must report as income. Instead, use Form 4137, Social Security and Medicare Tax on Unreported Tip Income. Firm.
Underreported income includes any earnings subject to tax that are left off of a tax return. The largest portion of the tax gap tracked by the IRS is made up of underreported income. Taxpayers may underreport income due to a desire to avoid paying tax or simple mistakes.
If you received any tips in 2022 that you didnt report to your employer as required (including allocated tips that you are required to report on your tax return), add these tips to the amount in box 1 of your Form(s) W-2 and report this amount as wages on Form 1040 or 1040-SR, line 1; or Form 1040-NR, line 1a.

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