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

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

IRS Form 4137, Social Security and Medicare Tax on Unreported Tip Income, is a specialized tax form used by employees who receive tips as part of their income but have not reported those tips to their employer. It allows employees to self-report unreported tip income and calculate the necessary Social Security and Medicare taxes that need to be paid on those tips.

This form is critical for those working in industries where tipping is common, such as restaurants, hospitality, and entertainment, as the IRS requires all income, including tips, to be reported. In this guide, we will discuss the purpose of Form 4137, when to file it, and how to properly complete it.

What is Form 4137?

Form 4137 is used by individuals who received tips during the tax year but did not report all of their tip income to their employer. The IRS requires that all tips received by employees be reported as part of taxable income, and if tips are not reported to the employer, the employee is responsible for reporting them directly to the IRS.

This form helps ensure that the appropriate amount of Social Security and Medicare taxes are paid on unreported tip income. Since the IRS taxes tips as regular income, employees who fail to report tips may be subject to penalties and additional taxes.

The form calculates the Social Security and Medicare tax owed on unreported tip income, and the total amount will be included in the employee’s overall tax liability.

Who Needs to File Form 4137?

You may need to file Form 4137 if you:

1. Received Tips That Were Not Reported to Your Employer
   If you are employed in an occupation where tipping is common (such as a server, bartender, or taxi driver), and you received tips that were not reported to your employer, you must use Form 4137 to report these unreported tips to the IRS.

2. Had Tips That Exceeded the Reporting Threshold
   Employers are required to collect Social Security and Medicare taxes on tips received by employees if the employee’s total tips exceed $20 per month. If you received more than $20 in tips in a month and did not report them, Form 4137 is necessary to report the unreported income.

3. Owe Social Security and Medicare Taxes on Tips
   The form calculates how much Social Security and Medicare tax you owe on your unreported tip income. Social Security and Medicare taxes are typically split between the employee and the employer. If you do not report your tips, you must pay both the employee’s and employer’s share using Form 4137.

4. Did Not Receive a W-2 With Accurate Tip Reporting
   If your employer did not properly report your tips on your W-2 or failed to withhold Social Security or Medicare taxes, you will need to use Form 4137 to calculate the taxes that should have been paid and report the unreported income.

When to File Form 4137

Form 4137 is filed as part of your annual income tax return, typically when you file Form 1040 or Form 1040-SR. You do not file Form 4137 separately; it is included as part of your overall tax filing for the year.

• Tax Year: Form 4137 should be filed for the same tax year in which you received the unreported tips.
• Deadline: Your tax return, including Form 4137, is due on April 15 of the year following the tax year. If you cannot meet the deadline, you can file for an extension.

If you miss the deadline for filing or fail to report your unreported tips, you may be subject to penalties and interest on the unpaid Social Security and Medicare taxes.

How to Complete Form 4137

Filling out Form 4137 involves reporting your unreported tip income and calculating the Social Security and Medicare taxes you owe. Here’s how to fill out the form step-by-step:

1. Part I – Tip Income
   In this section, you will need to enter the total amount of tips that were not reported to your employer. You should report all tip income that you received during the year that you did not previously report on your W-2.

   • Line 1: Enter the total amount of tips you received but did not report to your employer.
   • Line 2: Enter the amount of tips you reported to your employer during the tax year (if applicable).
   • Line 3: The total of the tips you received, including both reported and unreported tips, will be calculated here.

2. Part II – Social Security and Medicare Tax Calculation
   The next part of the form calculates the amount of Social Security and Medicare taxes that are owed on the unreported tips.

   • Social Security Tax: The tax rate for Social Security is 6.2% for employees (as of 2024). This rate applies to tip income up to the annual wage base limit.
   • Medicare Tax: The tax rate for Medicare is 1.45% on all wages and tips, with no income limit.

   The form will calculate both the employee’s and employer’s share of Social Security and Medicare taxes. Since you are responsible for both portions, the form helps ensure you pay both amounts.

3. Part III – Total Taxes Due
   This section will calculate the total amount of taxes due based on your unreported tips. The total will be added to your overall tax liability.

4. Attach Form 4137 to Your 1040
   Once you have completed Form 4137, attach it to your Form 1040 or 1040-SR when you file your tax return. The amounts on Form 4137 will be included in the total tax liability reported on your return.

Common Mistakes to Avoid When Filing Form 4137

1. Failing to Report All Tips
   Make sure you report the full amount of unreported tips that you received. Failure to report all tip income can lead to penalties and interest.

2. Incorrectly Calculating Taxes
   Carefully calculate the Social Security and Medicare taxes owed on your unreported tips. Double-check the tax rates and ensure you are using the correct figures for the year.

3. Not Including Form 4137 with Your Tax Return
   Remember that Form 4137 must be attached to your Form 1040 or 1040-SR. If you forget to include the form, your tax return may be incomplete, leading to delays or additional penalties.

4. Reporting Tips That Were Already Reported to Your Employer
   Only include tips that were not previously reported to your employer. If you have already reported your tips through regular payroll or a tip-reporting system, do not include those again on Form 4137.