How to Complete Tax Form 4137 for Unreported Tips

To fill out Form 4137, list each employer and the tips you received versus what you actually reported to them, subtract to find your unreported amount, apply the 6.2% Social Security rate (up to the annual wage base) and the 1.45% Medicare rate, and carry the results to Form 1040 Line 1c and Schedule 2 Line 5. The form has just 13 lines, but a few of them trip people up if you don’t have your figures organized first.

What to Gather Before You Start

Form 4137 works from your own tip records, not just your W-2. Pull together three things:

  • Your total tips for the year from each employer, whether or not you reported them. This comes from your daily tip diary or your saved credit card slips and restaurant bills.1Internal Revenue Service. Publication 531 – Reporting Tip Income
  • The tips you actually reported to each employer during the year. Box 7 on your W-2 shows Social Security tips, and Box 1 includes reported tips within wages, but you’ll need your own records to separate the reported total by employer.2Internal Revenue Service. Tip Recordkeeping and Reporting
  • Each employer’s name and Employer Identification Number, both on your W-2.

If Box 8 of any W-2 shows allocated tips, keep that figure handy too. Allocated tips flow through Form 4137 for the FICA calculation, and they need to be reported as income because no tax was withheld on them.3Internal Revenue Service. Tips

One boundary worth noting up front: tips under $20 in a calendar month from a single employer don’t have to be reported to that employer and aren’t subject to Social Security or Medicare tax.2Internal Revenue Service. Tip Recordkeeping and Reporting They’re still taxable as income, but Form 4137 gives you a line to pull them out of the FICA math.

Lines 1 Through 6: Finding Your Unreported Tips

Line 1 is a table with a row for each employer. In each row:

  • Column (a): the employer’s name.
  • Column (b): the employer’s EIN.
  • Column (c): the total cash and charge tips you received from that employer.
  • Column (d): the amount you actually reported to that employer.

If you had more than five employers, attach a separate sheet in the same format.4Internal Revenue Service. Form 4137 – Social Security and Medicare Tax on Unreported Tip Income

Line 2 is the total from column (c) — every tip you received. Line 3 is the total from column (d) — every tip you reported. Line 4 subtracts Line 3 from Line 2, giving you your total unreported tip income. That same number goes on your 1040 later.

Line 5 is where you subtract any tips that came in under the $20 monthly threshold from any single employer. Line 6 is Line 4 minus Line 5, and it’s the amount of unreported tips actually subject to Medicare tax.

Lines 7 Through 13: Calculating the Tax

Line 7 is the Social Security wage base for the year. For 2026, that ceiling is $184,500.5Social Security Administration. Contribution and Benefit Base Social Security tax stops once your earnings hit this limit.

Line 8 comes straight off your W-2: add Box 3 (Social Security wages) and Box 7 (Social Security tips). This is what’s already been counted against the wage base.

Line 9 is Line 7 minus Line 8 — how much room you still have under the ceiling. If regular wages already put you at or above the wage base, enter zero here. In that case you won’t owe additional Social Security tax on the unreported tips, though Medicare tax still applies.

Line 10 is the smaller of Line 6 or Line 9. This is the slice of unreported tips that actually gets hit with Social Security tax.

Line 11 multiplies Line 10 by 6.2%. That’s the Social Security tax.6Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates

Line 12 multiplies Line 6 by 1.45%. That’s the Medicare tax. Medicare has no wage ceiling, so every dollar of unreported tips gets taxed at this rate.6Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates

Line 13 adds Lines 11 and 12. That’s your total FICA on the unreported tips.

Where the Numbers Go on Your 1040

Two figures leave Form 4137 and land on your return:

Attach the completed Form 4137 to your paper return. If you’re e-filing, tax software includes it automatically once you’ve walked through its Form 4137 interview.

Handling Allocated Tips From W-2 Box 8

Allocated tips catch a lot of filers off guard. If you worked at a large food or beverage establishment where employee-reported tips fell below 8% of gross receipts, your employer allocated a share of the shortfall to you and put that figure in Box 8. It’s not included in Box 1, Box 5, or Box 7, and no tax has been withheld on it.2Internal Revenue Service. Tip Recordkeeping and Reporting

You generally have to report the full Box 8 amount as income unless your daily tip records prove you received less.3Internal Revenue Service. Tips Run the Social Security and Medicare tax on it through Form 4137 the same way you would for tips you never reported.8Internal Revenue Service. About Form 4137, Social Security and Medicare Tax On Unreported Tip Income

What It Costs to Skip Filing

Filing Form 4137 voluntarily is cheaper than having the IRS find the gap for you. Failing to report tips to your employer as required can trigger a penalty equal to 50% of the Social Security and Medicare tax owed on the unreported amounts.9Office of the Law Revision Counsel. 26 U.S. Code 6652 – Failure to File Certain Information Returns If Form 4137 shows $500 in FICA due, that penalty adds another $250. The IRS can waive it for reasonable cause, meaning the failure wasn’t due to willful neglect.

If the unreported tips cause a substantial understatement of your total tax or the IRS decides you were negligent, a separate 20% accuracy-related penalty can apply to the underpaid amount.10Internal Revenue Service. Penalty Relief for Reasonable Cause

Interest compounds daily on any unpaid tax from the original due date. The IRS individual underpayment rate was 7% for the first quarter of 2026 and dropped to 6% for the second quarter.11Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 202612Internal Revenue Service. Internal Revenue Bulletin 2026-8 The rate adjusts every quarter.

If you have a legitimate reason for the failure, such as serious illness, a natural disaster, or reliance on bad advice from a tax professional, you can request penalty relief. Sometimes a phone call to the number on the IRS notice handles it; otherwise, submit a written request on Form 843 with documentation to back it up.10Internal Revenue Service. Penalty Relief for Reasonable Cause Vague explanations don’t tend to work.