Decoding Form 4137: A Guide to Reporting Unreported Tips

Overview of Form 4137 and Its Purpose

Form 4137 is used to calculate the Social Security and Medicare taxes owed on tips that were not reported to your employer. This includes unreported tips as well as allocated tips shown on your Form(s) W-2 that must be reported as income.

• It is specifically designed for tip income that was not previously reported to the employer.
• By filing Form 4137, you ensure that your Social Security and Medicare taxes on tips are properly credited to your Social Security record, which affects future benefits.
• You must also report this tip income on your federal tax return (Form 1040, 1040-SR, or 1040-NR) on the appropriate line.
• Do not use Form 4137 as a substitute for Form W-2; it is supplementary and used only for calculating unreported tip taxes.

Who Needs to File Form 4137: Eligibility and Requirements

Form 4137, titled "Overseas Employment Tax Credit," is used by U.S. taxpayers who are eligible for the foreign earned income exclusion or foreign housing exclusion/deduction. The form is specifically designed for individuals who work abroad and meet certain criteria to claim these exclusions.

• Eligibility: You must be a U.S. citizen or resident alien working abroad.
• Work Location: You must be employed in a foreign country, and your work must be performed outside the United States.
• Exclusion Tests: You must meet either the bona fide residence test or the physical presence test to qualify for the foreign earned income exclusion.
• Filing Requirement: You are required to file Form 4137 if you are claiming the foreign earned income exclusion or foreign housing exclusion/deduction on your tax return.
• Timing: The form is typically filed with your annual Form 1040, and you must attach it to your return if you are claiming these exclusions.

Key Sections of Form 4137: Important Parts and What They Cover

Form 4137 is specifically designed to calculate the Social Security and Medicare taxes owed on tips that were not reported to your employer. It is used in conjunction with your Form 1040, 1040-SR, or 1040-NR to ensure accurate tax reporting.

• Purpose Section: Explains that Form 4137 is only for calculating unreported tips, including allocated tips shown on your W-2 that must be reported as income.
• Tax Calculation Section: Includes fields to enter the total amount of unreported tips and compute the corresponding Social Security and Medicare taxes (6.2% and 1.45% respectively).
• Reporting Section: Tips reported on Form 4137 are employee wages, not self-employment income. The tax from Form 4137 is reported on Schedule 2 (Form 1040), Line 5. It is labeled "Social security and Medicare tax on unreported tip income
• Record Keeping Section: Ensures that the reported tips are credited to your Social Security record, which affects future benefits.
• Important Note: Emphasizes that Form 4137 should not be used as a substitute for Form W-2; it is supplementary for unreported tip income.

What's New for Form 4137: Recent Tax Law Changes and Updates for 2025

Form 4137, titled "Social Security and Medicare Tax on Unreported Tip Income," is used by employees to calculate and report taxes on tips that were not reported to their employer. For the 2025 tax year, the form remains focused on unreported cash and charge tips totaling $20 or more in any calendar month, as well as allocated tips shown on Form(s) W-2, Box 8, that must be reported as income.

1. Updated Wage Base Limits

The maximum amount of wages and tips subject to the 6.2% Social Security tax has increased for the current and upcoming years:

• 2025 Tax Year: The limit is $176,100.
• 2026 Tax Year: The limit rises to $184,500.
• Medicare Tax: There remains no wage limit for the 1.45% Medicare tax.
• No Tax on Tips Deduction: Under the One Big Beautiful Bill Act, you may deduct up to $25,000 of qualified tips from your income tax on Schedule 1-A (Form 1040). However, you must still file Form 4137 to pay the Social Security and Medicare taxes on those tips

Related Schedules and Forms for Form 4137

Form 4137, Social Security and Medicare Tax on Unreported Tip Income, is used by employees to calculate and report taxes on tips that were not reported to their employer. This form must be attached to the taxpayer’s federal tax return.

• Schedule 2 (Form 1040): The total tax calculated on Form 4137 (line 13) must be reported on Schedule 2, line 5 or line 6a, depending on the tax return form used (Form 1040, 1040-SR, or 1040-NR).
• Form W-2: Taxpayers must reference their Form W-2 to determine if allocated tips (shown in Box 8) need to be reported using Form 4137. If tips were not fully reported to the employer, Form 4137 is required.
• Form 8919: If a taxpayer received Form 1099-MISC or Form 1099-NEC instead of a Form W-2 because the employer did not classify them as an employee, they should use Form 8919, not Form 4137, to report uncollected social security and Medicare taxes.
• Form W-2AS, W-2GU, W-2VI, or Form 499R-2/W-2PR: For employees working in American Samoa, Guam, U.S. Virgin Islands, or Puerto Rico, uncollected tax amounts are shown in Box 12 (codes A and B) on these specific wage statements, which may affect how Form 4137 is completed.
• Additional Form 4137 or Statement: If a taxpayer had more than five employers in the tax year, they must attach a statement or additional Form(s) 4137 to report all employers. Only one main Form 4137 is completed for lines 2 through 13, with totals combined from all sources.

Important Deadlines for Form 4137: When to File and Penalties for Late Filing

Form 4137 is used to calculate Social Security and Medicare taxes on unreported tip income. You must file this form if you received cash and charge tips totaling $20 or more in a calendar month and did not report all of them to your employer, or if your W-2 shows allocated tips that must be reported as income.

• Filing Deadline: Form 4137 must be filed with your federal tax return (Form 1040, 1040-SR, or 1040-NR) by the standard tax filing deadline, typically April 15 of the following year. If you file electronically, the deadline may be extended to April 17 if that date falls on a weekend or holiday.
• Reporting Timing: You actually have until the 10th day of the month following the month you received the tips to report them to your employer (not 7 days). If the 10th falls on a weekend or holiday, the deadline is the next business day.
• Penalties for Late Filing: There is a very specific penalty for failing to report tips to your employer. If you don't report them as required, you may be charged a penalty equal to 50% of the Social Security and Medicare taxes due on those tips, in addition to the taxes themselves.
• Electronic Filing: You can add Form 4137 directly in tax preparation software by navigating to the Federal section, selecting "Show more" under Taxes, and choosing "Add or Edit" for Social Security and Medicare Tax on Unreported Tip Income.
• Important Note: Do not use Form 4137 for tips received while working under the Railroad Retirement Tax Act—those must be reported separately to your employer for railroad retirement credit.

Common Mistakes to Avoid on Form 4137

Form 4137 is used to calculate Social Security and Medicare taxes on unreported tips. Taxpayers should avoid the following common errors:

• Using Form 4137 as a substitute for Form W-2 – This form is not meant to replace your employer’s wage statement. It’s only for unreported tips.
• Not filing when required – If you received $20 or more in cash or charge tips in a calendar month and didn’t report them to your employer, you must file Form 4137.
• Incorrectly reporting allocated tips – If your W-2 shows allocated tips that must be reported as income, you must include them on Form 4137 and also report them on your tax return (Form 1040, 1040-SR, or 1040-NR, line 1c).
• Reporting railroad retirement tips incorrectly – Tips from work covered by the Railroad Retirement Tax Act (RRTA) should not be reported on Form 4137. These must be reported to your employer for proper credit.
• Misclassifying income – If you received income via Form 1099-MISC or 1099-NEC instead of a W-2, use Form 8919, not Form 4137, to report uncollected Social Security and Medicare taxes.
• Incorrectly calculating tax amounts – Ensure you multiply the correct tip amounts by the proper tax rates: 6.2% for Social Security and 1.45% for Medicare. The total should be reported on Schedule 2, line 5 or 6a.
• Not completing separate forms for multiple employers – If you had more than five employers, attach a statement with all required information or use additional forms. Only one Form 4137 should contain lines 2 through 13, with totals combined.
• Reporting tips that were already reported – Tips reported to your employer, even if late, should not be included again on Form 4137. They are already part of your gross income for the year earned.
• Ignoring the $20 monthly threshold – Tips under $20 in a calendar month are not subject to Social Security and Medicare tax and should not be included on Form 4137.
• Not including spouse’s tips separately – If married and both spouses have unreported tips, each must file a separate Form 4137.

Helpful Tips for Completing Form 4137

Form 4137 is used to calculate Social Security and Medicare taxes on tips that were not reported to your employer, including allocated tips shown on your W-2. You must file this form if you received $20 or more in cash or charge tips in any calendar month and did not report all of them to your employer, or if your W-2 shows allocated tips you must report as income.

• Complete a separate row for each employer: List each employer’s name, EIN, and total tips received (cash and charge) in columns (a), (b), and (c). Column (d) should show the tips you reported to your employer.
• Calculate unreported tips: Subtract the amount reported to your employer (column d) from total tips received (column c) to find unreported tips. This amount is taxable and must be reported on your tax return.
• Calculate taxes: Multiply the unreported tips by 6.2% for Social Security tax and 1.45% for Medicare tax. Add both amounts to determine total tax owed.
• Report on Schedule 2: Include the total tax calculated on Form 4137 in the appropriate line on Schedule 2 of Form 1040, 1040-SR, or 1040-NR.
• Do not use for railroad work: If your job is covered by the Railroad Retirement Tax Act, do not use Form 4137. Report those tips directly to your employer.
• Attach additional forms if needed: If you had more than five employers, attach a statement with the same information or use additional Form(s) 4137.
• Include late-reported tips: Tips reported late are still included in the year they were earned and received, so include them on Form 4137 for the correct tax year.

Source

• For more up-to-date information visit https://www.irs.gov Government website.
• For the most accurate and detailed information regarding which schedules and forms are necessary for your specific tax situation, refer to the Instructions for Form 4137 or consult a tax professional.

How to add Form 4137?

Software can guide you through how to add Form 4137 while filing your tax return using our Software. To add Form 4137 in the software, follow these steps:

1. From within your Tax return (Online), in the left menu (for mobile devices, tap the three dots in the top-right corner to see more options), click on Federal.
2. Under the Taxes section, click on the Show more button near Unreported Social Security and Medicare Tax, then click on Add or Edit next to Social Security and Medicare Tax on Unreported Tip Income - Form 4137.
3. Follow the on-screen instructions.