Form 4137: How to Report Unreported Tips and Pay Social Security & Medicare Taxes

Overview of What is Form 4137 and its Purpose

Form 4137 Purpose

• Form 4137 is used to calculate the Social Security and Medicare taxes owed on tips that were not reported to your employer.
• It is specifically for employees who received cash or charge tips of $20 or more in a calendar month and failed to report all of them to their employer.
• The form also applies if your W-2 shows allocated tips that you must report as income, even if you did not receive them directly.
• By filing Form 4137, you ensure that your Social Security and Medicare taxes on unreported tips are credited to your Social Security record, which affects future benefits.
• It must be attached to your tax return (Form 1040, 1040-SR, or 1040-NR) and the calculated tax is reported on Schedule 2, line 5, or Form 1040-SS, Part I, line 6a.

Who Needs to File Form 4137?

Who Must File

• Individuals who received cash and charge tips of $20 or more in a calendar month and did not report all of those tips to their employer.
• Individuals whose Form(s) W-2, box 8, shows allocated tips that must be reported as income.
• Each spouse must file a separate Form 4137 if both have unreported tips.

Filing Requirements

• Complete a separate row for each employer on line 1. If more than five employers, attach a statement with the same format.
• Include all cash and charge tips received, including those reported late or not reported at all.
• Enter unreported tips on Form 1040, 1040-SR, or 1040-NR, line 1c, and attach Form 4137 to the tax return.
• Report the tax on Schedule 2 (Form 1040), line 5, or Form 1040-SS, Part I, line 6a.

General Instructions

• Use Form 4137 only for tips not reported to the employer, including allocated tips shown on W-2, box 8.
• For government employees, adjust line 6 if tips were subject only to Medicare tax (1.45%).
• Include all tips received in 2025, regardless of reporting status, in column (c) of line 1.
• Attach additional forms or statements if more than five employers are involved.

Key Sections Form 4137: Important parts of the form and what they cover

Personal Information

• Name and Social Security Number: Required for each individual receiving unreported tips. Married individuals must file a separate Form 4137 for each spouse with unreported tips.

Employer and Tip Details (Line 1)

• Employer Information: Enter the name and EIN of each employer to whom tips were not fully reported.
• Tip Reporting: Include all cash and charge tips received, categorized into timely reported, late reported, and unreported tips. Timely reported tips are included in gross income for the month and year of reporting.
• Multiple Employers: If more than five employers, attach a statement with the same format or additional Form(s) 4137. Combine totals for lines 2–13 on one form.

Income and Tax Calculations

• Line 2 (Total Tips): Sum of all tips received from all employers.
• Line 3 (Reported Tips): Total tips reported to employers.
• Line 4 (Unreported Tips): Subtract line 3 from line 2 to determine unreported tips, which must be reported as income on Form 1040, 1040-SR, or 1040-NR, line 1c.
• Line 5 (Tips < $20): Exclude unreported tips under $20/month (not subject to Social Security or Medicare tax).
• Line 6 (Unreported Tips Subject to Medicare Tax): Subtract line 5 from line 4.
• Line 7 (Maximum Social Security Limit): For 2025, the limit is $176,100.
• Line 8 (Social Security Wages and Tips): Total of wages and tips subject to 6.2% social security tax, including railroad retirement compensation if applicable.
• Line 9 (Unreported Tips Subject to Social Security Tax): line 6 adjusted for Social Security wage limit.
• Line 10 (Social Security Taxable Tips): The smaller of line 6 or line 9 (unreported tips subject to social security tax).
• Line 11 (Social Security Tax): Line 10 × 6.2%.
• Line 12 ( Medicare Tax): Line 12 – Line 6 × 1.45%. Additional Medicare Tax is reported separately on Form 8959 if applicable.
• Line 13 (Total Tax Due): Add lines 11 and 12 to determine total tax owed, which is reported on Schedule 2 (Form 1040), line 5, or Form 1040-SS, Part I, line 6a.

What's New for Form 4137: Recent tax law changes and updates for the current year

• For 2025, the maximum wages and tips subject to social security tax increases to $176,100.
• The social security tax rate an employee must pay on tips remains at 6.2%.
• A 0.9% Additional Medicare Tax applies to Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income over a threshold amount based on your filing status. Use Form 8959, Additional Medicare Tax, to figure this tax.

Taxpayers Affected by Form 4137 Updates

Key Changes for 2025

• The maximum wages and tips subject to Social Security tax increased to $176,100 for 2025.
• The Social Security tax rate remains at 6.2% for employees on unreported tips.
• The Medicare tax rate remains at 1.45% on unreported tips.
• Additional Medicare Tax of 0.9% applies to income over certain thresholds, calculated using Form 8959.

Important Notes

• Do not use Form 4137 for tips received under the Railroad Retirement Tax Act (RRTA).
• Form 4137 is used only to calculate Social Security and Medicare taxes on unreported tips; it does not substitute for Form W-2.
• Reported tips must be included in gross income for the month and year earned, with timely reporting affecting the tax year in which they are reported.

Example Scenario Showing How the Form 4137 Changes Apply

For 2025, the maximum wages and tips subject to social security tax increases to $176,100.

• Taxpayer: Maria Gonzalez, a server at a restaurant in Austin, Texas, earned $15,000 in unreported tips during 2025. She did not report these tips to her employer and must now file Form 4137 to account for the social security and Medicare taxes owed.
• What changed: In 2025, the maximum amount of wages and tips subject to social security tax increased to $176,100. This means Maria’s unreported tips are still within the taxable limit, and she must pay 6.2% social security tax and 1.45% Medicare tax on the full $15,000.
• Practical impact: Maria calculates her social security tax as $15,000 × 0.062 = $930 and her Medicare tax as $15,000 × 0.0145 = $217.50. She reports these amounts on Form 4137 and includes them on her Form 1040, line 1c, as part of her total income. Since her total tips are below the $176,100 threshold, no portion of her tips is exempt from tax.
• Before-and-after: In prior years, if the threshold had been lower (e.g., $170,000), Maria might have had a portion of her tips exempt from social security tax if she had already reached the cap through reported wages. But in 2025, with the higher cap, all of her unreported tips remain taxable.

Related Schedules and Forms for Form 4137

Form 1040

• Used to report income from tips; the amount calculated on Form 4137 is included on line 1c of Form 1040, 1040-SR, or 1040-NR.

Form 1040 Schedule 1-A

• Includes tip income reported on Form 4137 as part of total income on line 1c.

Form 1040-NR

• Nonresident aliens report tip income from Form 4137 on line 1c of Form 1040-NR.

Form W-2

• Provides total social security wages and tips (boxes 3 and 7) needed to calculate tax on Form 4137.

Form 1040SS

• Used by U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico); the tax calculated on Form 4137 is reported on Part I, line 6a of Form 1040SS.

Schedule 2 (Form 1040)

• The total tax calculated on Form 4137 (line 13) must be included on line 5 of Schedule 2 (Form 1040) or line 6a of Form 1040-SS, Part I.

Common Mistakes to Avoid on Form 4137

• Missing employer information: Failing to enter the employer’s name and EIN exactly as shown on Form W-2 in columns (a) and (b) can cause processing delays or rejection.
• Incorrect tip reporting: Not including all cash and charge tips, including allocated tips from Form W-2, box 8, may result in underreporting and penalties.
• Skipping required attachments: If you had more than five employers, failing to attach a detailed statement with all required information will lead to incomplete filing.
• Incorrect line usage: Completing lines 2 through 13 on multiple forms instead of consolidating totals on a single Form 4137 can create calculation errors.
• Not reporting unreported tips: Failing to file Form 4137 when you received $20 or more in tips per month and did not report them to your employer may trigger a 50% penalty.
• Using Form 4137 incorrectly: Applying this form to income reported on Form 1099-MISC or 1099-NEC instead of Form W-2 is a critical error—use Form 8919 for those cases.
• Omitting personal details: Forgetting to include your name, Social Security number, and tax year (2025) on attachments or the form itself may delay processing.
• Incorrectly calculating tax: Miscalculating the 6.2% Social Security tax or 1.45% Medicare tax on unreported tips can lead to underpayment and interest charges.
• Not attaching Form 4137 to tax return: Forgetting to attach this form to your Form 1040, 1040-SR, or 1040-NR means the IRS won’t credit your Social Security record for these tips.
• Reporting tips already included in W-2: Entering tips that were already reported to your employer (and included in W-2, box 1) on line 1c of Form 1040 will result in double-counting.

Helpful Tips for Completing Form 4137: Best Practices

Reporting Tips Accurately

• Report all unreported tips, including allocated tips from Form W-2, box 8, unless you have records proving your actual unreported tips are less than the amount shown.
• Include all cash and charge tips (cash, check, debit, credit) received directly from customers or through tip-sharing arrangements.
• For each employer, complete a separate row on line 1. If you had more than five employers, attach a statement with the same format.

Tax Calculation and Filing

• Enter total unreported tips in column (c) and total tips reported to employer in column (d) for each employer.
• Calculate social security tax (6.2%) and Medicare tax (1.45%) on unreported tips. The social security tax applies only up to $176,100 for 2025.
• Report the unreported tip income on Form 1040, 1040-SR, or 1040-NR, line 1c, and attach Form 4137 to your tax return.
• Do not use Form 4137 as a substitute for Form W-2; it is only for calculating uncollected taxes on unreported tips.

Source

• For more up-to-date information visit https://www.irs.gov Government website.
• Refer to the Instructions for Form 4137 for detailed information.