Form 4137: Social Security and Medicare Tax On Unreported Tip Income

Taxpayers who earn more than $20 a month in tips are required to report the income to their employer and pay taxes on the funds. Tip income is subject to social security, Medicare, and Additional Medicare Tax, as well as income tax withholding. When you get your W-2, it will show your wages and the tips you reported or the tips that were allocated to you. If your actual tips are more than what you reported to your employer, you’ll need to file Form 4137 for the unreported amount.

What is the purpose of Form 4137?

Form 4137 is used to calculate the Social Security and Medicare tax you owe on tips that weren’t reported to your employer. This includes any allocated tips shown in Box 8 of your Form W-2. Filing Form 4137 will ensure that your tip income and the taxes you paid get credited to your social security record. This will impact how your benefits are calculated when it’s time to start collecting social security.

Who must file Form 4137?

If you received $20 or more in tips for any month and didn’t tell your employer, you must file Form 4137. Tips can include money given directly to you from customers, gratuity charged to a credit or debit card, and tips shared with your coworkers. You’re also required to file if your Form W-2, box 8, shows allocated tips.

How do I enter Form 4137 information on my taxes?

Unreported tip income goes on line 1c of your Form 1040 or 1040-SR. Don’t worry, when you do your taxes with ezTaxReturn, we handle the forms and math for you. Just answer our simple questions and we’ll make sure your income is reported correctly.

When to report tips to your employer

Anytime you earn $20 or more in cash tips, you must report the full amount to your employer in writing. Cash tips refer to tips paid by cash, check, debit card, and credit card. If you worked for more than one employer during the month and earned tips while working for each, the $20 rule applies separately. You must report your tip income to your employer by the 10th day of the following month.

What is the penalty for not reporting tips?

The penalty for failing to report your tip income is 50% of the social security, Medicare, and Additional Medicare Taxes due. However, you may be able to avoid the penalty if you can provide proof that you didn’t omit the information on purpose.

What is the Social Security tax rate and wage limit?

For 2023, the maximum earnings subject to social security tax is $160,200. The social security tax rate is holding steady at 6.2%.

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