1. Introduction – What is Form 4137?
IRS Form 4137, officially titled “Social Security and Medicare Tax On Unreported Tip Income,” is an individual federal tax form used by tipped employees. It is issued and governed by the Internal Revenue Service (IRS) in coordination with the Social Security Administration (SSA).
This form allows employees who receive cash or charge tips to calculate and pay their share of Social Security and Medicare taxes on tips that were not reported to their employer. Filing Form 4137 ensures that your unreported tip earnings are credited to your official Social Security work record.
2. Purpose of the Form – Why Does This Form Exist?
Federal law requires tipped employees to report cash and charge tips totaling $20 or more in any calendar month to their employer. Your employer then automatically withholds Social Security and Medicare taxes (FICA) from your paychecks based on those reported tips.
However, if you forgot to report tips, underreported them, or received “allocated tips” from your employer on your Form W-2, FICA taxes were never withheld. Form 4137 solves this problem by providing a formal method to calculate and pay those missing taxes when you file your annual income tax return.
3. Who Needs to File This Form – Eligibility Criteria
You must complete and attach Form 4137 to your individual tax return if you received tips during the tax year and fit into either of the following categories:
- You received cash or charge tips of $20 or more in any calendar month while working for a single employer, and you did not report those tips to your employer.
- Your employer reported “allocated tips” to you in Box 8 of your Form W-2, which must be evaluated and reported as tip income unless you have adequate daily records showing actual lower tip totals.
4. Who Is Exempt / Not Required to File
You do not need to file Form 4137 under any of the following circumstances:
- All tips were reported on time: You reported all your monthly tips ($20 or more) to your employer, and FICA taxes were already withheld on your Form W-2.
- Tips under $20 per month: Your cash and charge tips from a single employer totaled less than $20 in a calendar month. (Note: These small tips are subject to income tax, but exempt from Social Security and Medicare taxes on Form 4137.)
- Self-employed workers: You earned tips as an independent contractor or freelancer. Self-employed workers report tip income on Schedule C and calculate self-employment taxes on Schedule SE, not Form 4137.
5. When to File – Deadlines and Frequency
Form 4137 is an annual tax attachment. You file it once a year attached directly to your individual income tax return (Form 1040 or Form 1040-SR).
The filing deadline matches the standard federal tax return deadline, which is usually April 15 following the close of the tax year. If you request a six-month tax extension for your main tax return, the due date for submitting Form 4137 extends to October 15.
6. Where and How to File
You can submit Form 4137 electronically or by paper mail alongside your annual tax return. E-filing through IRS-approved tax preparation software is recommended to automatically calculate tax rates and prevent math mistakes.
If you choose to paper file, attach Form 4137 behind your Form 1040 tax package. Mail the entire return to the IRS address as per instructions for your geographical region and filing status.
7. Step-by-Step Instructions to Fill the Form
Form 4137 guides you through calculating unreported tips and computing the corresponding Social Security and Medicare taxes. Here is a breakdown of how the major lines work:
| Line Number | Field Description | How to Calculate or Complete |
|---|---|---|
| Line 1 (Columns A–F) | Employer Details & Tip Summaries | Enter your employer’s name, Employer Identification Number (EIN), total cash/charge tips received, and tips actually reported to that employer. |
| Line 2 | Total Unreported Tips | Enter the sum of all cash and charge tips received during the year that were not reported to your employer. |
| Line 3 | Exempt Tips Under $20/Month | Enter total tips received in months where your tips from a single employer were less than $20. These are exempt from Social Security and Medicare tax. |
| Line 4 | Tips Subject to Tax | Subtract Line 3 from Line 2. This represents your net unreported tip income subject to FICA taxes. |
| Line 5–10 | Social Security Tax Calculation | Calculate Social Security tax (6.2%) on taxable tips up to the annual Social Security wage maximum cap. |
| Line 11–13 | Medicare Tax Calculation | Multiply total taxable tip income by the Medicare tax rate (1.45%) and combine it with Social Security tax to find your total tax due. |
8. Required Documents/Information Needed Before Filling
Gather these important documents before filling out Form 4137:
- Form W-2: Issued by your employer, specifically checking Box 1 (Wages), Box 3 (Social Security wages), Box 7 (Social Security tips), and Box 8 (Allocated tips).
- Daily Tip Log: IRS Form 4070A or an electronic tip tracking app showing daily cash and credit card tips received.
- Monthly Tip Reports: Copies of paper tip reports submitted to your employer during the tax year.
- Employer Identification Numbers (EINs): Found in Box b of your Form W-2.
9. Common Mistakes to Avoid
Filing errors on Form 4137 can trigger IRS audit notices or underpayment penalties. Watch out for these common errors:
- Ignoring Box 8 Allocated Tips: Failing to report allocated tips shown in Box 8 of your W-2 without having an accurate daily log to disprove them.
- Including tips under $20 in FICA tax: Forgetting to subtract monthly tips under $20 on Line 3, resulting in overpaying Social Security and Medicare taxes.
- Confusing employees with self-employed contractors: Freelancers and independent contractors should not use Form 4137 for tip income.
- Double counting reported tips: Including tips on Line 2 that were already reported to your employer and included in Box 7 of your Form W-2.
10. Penalties for Non-Filing or Errors
Under federal tax law, employees must report monthly tips of $20 or more to their employer by the 10th day of the following month. If you failed to report tips on time without a reasonable cause, the IRS may assess a penalty under Internal Revenue Code Section 6652(b).
This penalty equals 50% of the employee share of Social Security and Medicare taxes due on the unreported tips. This 50% penalty is charged in addition to paying the missing FICA taxes and any interest accrued on unpaid tax balances.
11. Related Forms or Schedules
Form 4137 connects to several other IRS tax documents, including:
- Form 1040 – U.S. Individual Income Tax Return
- Schedule 2 (Form 1040) – Additional Taxes
- Form W-2 – Wage and Tax Statement
- Form 4070A – Employee’s Daily Record of Tips
- Form 8919 – Uncollected Social Security and Medicare Tax on Wages
12. Frequently Asked Questions (FAQs)
Are tips under $20 per month taxable?
Yes, for federal income tax purposes, all tips are taxable. However, if your tips from a single employer total less than $20 in a calendar month, they are exempt from Social Security and Medicare taxes and should be excluded on Line 3 of Form 4137.
What should I do if Box 8 on my W-2 shows allocated tips?
Allocated tips are additional tip amounts designated by your employer. You must report Box 8 allocated tips on Form 4137 unless you maintain a detailed daily tip log (such as Form 4070A) proving your actual tip earnings were lower.
Does filing Form 4137 increase my Social Security benefits?
Yes. Paying Social Security taxes on unreported tips via Form 4137 ensures that the IRS reports those wages to the Social Security Administration, which increases your overall lifetime earnings record and future retirement benefits.
What is the penalty for not reporting tips to my employer on time?
The penalty is equal to 50% of the Social Security and Medicare taxes owed on the unreported tips. The IRS may waive this penalty if you can prove reasonable cause, such as a severe illness or emergency.
Do independent contractors or ride-share drivers use Form 4137?
No. Independent contractors, ride-share drivers, and self-employed workers report all tip income on Schedule C and calculate their self-employment tax using Schedule SE.
Where does the total tax from Form 4137 go on my tax return?
The calculated tax from Line 13 of Form 4137 transfers directly to Schedule 2 (Form 1040), which is then added to your total tax liability on Form 1040.
13. Conclusion – Key Takeaways
IRS Form 4137 ensures that tipped employees pay their fair share of Social Security and Medicare taxes on cash, charge, and allocated tips that were not previously reported to employers. While paying extra tax at filing time can feel burdening, completing this form correctly protects you from severe IRS penalties.
Most importantly, reporting unreported tips on Form 4137 builds your official Social Security wage history, ensuring you receive higher retirement, disability, and survivor benefits in the future. Keep detailed daily tip logs throughout the year to make filing accurate and stress-free.
