What is Form 4137 used for?
Taxpayers who work in an industry in which a portion of their income is earned from customer tips along with their hourly wages need to pay Social Security and Medicare taxes on those earnings.
If tipped income is reported to the employer during the year, it will be included in Boxes 1, 5, 7, and 8 of Form W-2. However, if the taxpayer received more than $20 in unreported tips in a month, those tips will need to be entered on Form 4137 to calculate the additional Social Security and Medicare tax on the tips.
Requirements for tipped employees
There are two requirements for tipped employees:
-
Keep a daily tip record. For helpful information about keeping a record of tips, see IRS Publication 531 here. A tipped employee should record the following tips:
- Tips paid in cash and currency
- Tips from credit card charges
- Noncash tips such as tickets, passes, etc.
- Tips the employee paid to other employees and their names, if there is a tip pooling or sharing arrangement.
-
Report tips to the employer. The employee is required to report cash, check, credit card, and debit card tips monthly if tips for the month are $20 or more. The $20 threshold applies separately to each employer. There are two taxes on tips:
- Income Tax - Tips reported to an employer are included in Box 1 of Form W-2. All tips are taxable, including noncash tips and tips that total less than $20 a month.
- Social Security and Medicare Tax - If an employee's wages are not enough to withhold tax, tax uncollected at year-end is reported in Box 12 of Form W-2 using code A or B.
Entering unreported tips in TaxSlayer Pro
To enter unreported tips in the individual income tax return in TaxSlayer Pro, from the Main Menu of the tax return (Form 1040) select:
- Other Taxes
-
Social Security & Medicare Tax on Unreported Tip Income (4137) - For a return being filed MFJ, indicate if the form is for the taxpayer or spouse.
- W-2 Employer Information - Select the employer and enter the total of all unreported tips, without consideration for the $20 per month threshold.
- Tips Not Reported because they were < $20 a month - Enter here the total of unreported tips received in a month where the total for the month was under $20. These tips are included in the previous step but then are deducted before calculating the additional Social Security and Medicare tax.
- Tips Received as Federal, State or Local Government Employee - The amount entered here is deducted from Form 4137 Line 10 but included in the calculation on Line 12.
Note: This is a guide to entering unreported tips into the TaxSlayer Pro program. This is not intended as tax advice.
Additional Information:
Publication 1244, Employee’s Daily Record of Tips and Report to Employer (includes Form 4070A)