Form 4137 is the IRS form you use to work out the Social Security and Medicare tax you owe on tips you didn't report to your employer, including allocated tips in box 8 of your W-2. You must file it if you got $20 or more in cash and charge tips in a calendar month and didn't report all of them. The tax goes on Schedule 2, and the tips themselves go on Form 1040, line 1c.
Every figure below comes from the 2025 Form 4137 and the IRS instructions for Form 1040, as of October 2026. If you're filing for a later year, check the form for that year, because the Social Security wage base changes.
Who has to file Form 4137
You need Form 4137 in two situations. The first is when you received $20 or more in cash and charge tips in a calendar month from one employer and didn't report all of them. The second is when your W-2 shows allocated tips in box 8 that you must report as income.
Cash tips include tips paid by cash, check, debit card and credit card. The $20 rule applies separately to each employer, so if you worked two jobs in one month, you test each job on its own, not the total. Tips reported to your employer should reach them by the 10th day of the following month.
- Don't use Form 4137 if you're a railroad worker covered by the Railroad Retirement Tax Act. Those tips are reported to your employer instead.
- Don't use it if you were paid on a 1099-NEC or 1099-MISC but believe you were an employee. That situation belongs on Form 8919.
- Don't use it as a substitute W-2.
How the form works, line by line
- Line 1: one row per employer, with the employer's name and EIN exactly as they appear on your W-2, the total cash and charge tips you received in column (c) and the tips you reported to them in column (d).
- Line 4: tips received minus tips reported. This amount is also income on Form 1040, line 1c.
- Line 5: tips you didn't have to report because they were under $20 in a month. These aren't subject to Social Security or Medicare tax.
- Line 6: line 4 minus line 5, the unreported tips subject to Medicare tax.
- Lines 7 to 10: the Social Security wage base for 2025 is $176,100. Subtract your W-2 Social Security wages and tips, and the smaller of the remaining room or line 6 is taxed for Social Security.
- Line 11: line 10 multiplied by 6.2%. Line 12: line 6 multiplied by 1.45%. Line 13 adds them together and goes on Schedule 2 (Form 1040), line 5.
| Tax on unreported tips | Rate for 2025 | Limit |
|---|---|---|
| Social Security | 6.2% | Only up to the $176,100 wage base, after your W-2 wages |
| Medicare | 1.45% | No wage base |
| Additional Medicare Tax | 0.9% | Over a threshold by filing status, figured on Form 8959 |
If you had more than five employers, attach a statement in the same format as line 1, and complete lines 2 to 13 on just one Form 4137.
The detail most tipped workers miss
For 2025 there's a new deduction for qualified tips on Schedule 1-A, worth up to $25,000 regardless of filing status. The IRS instructions say tips you report directly on Form 4137 can count toward it, as long as they're qualified tips in an occupation on the IRS list. The IRS gives a bartender example: $4,000 of unreported tips on Form 4137, line 4, can be added to the tips shown on the W-2 when working out the deduction.
That changes how Form 4137 feels. It still adds Social Security and Medicare tax, because the deduction only reduces income tax. But reporting those tips can also reduce your income tax, and it credits the tips to your Social Security record, which is used to work out your benefits. The deduction is reduced once modified adjusted gross income passes $150,000, or $300,000 for married couples filing jointly, and married people must file jointly to claim it.
Allocated tips in W-2 box 8
Allocated tips appear in box 8 of your W-2, but they aren't included in box 1 and no tax is withheld on them. You must report them as income on Form 1040, line 1c, unless you've got adequate records showing your unreported tips were less than the box 8 amount. That's why a tip log matters: it's the only way to report less than the allocated figure.
Penalty for not reporting tips
If you didn't report tips to your employer as required, the IRS can charge a penalty equal to 50% of the Social Security, Medicare and Additional Medicare Tax due on those tips. You can avoid it by attaching a statement showing the failure was due to reasonable cause and not willful neglect.
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Timing matters too. Tips you report to your employer on time count in the month and year you report them, so December tips reported by the January deadline go on next year's form. Tips reported late, or not at all, count in the year you received them. If you're employed somewhere new and paid through payroll, your W-2 shows the tips you did report in box 7.
The verdict
Form 4137 is short, but it's the form that settles the payroll tax on tips your employer never saw. File it when you crossed $20 in a month or your W-2 has allocated tips, and don't skip the qualified tips deduction on Schedule 1-A, because the same tips can lower your income tax. Keep a daily tip log: it's the evidence the IRS asks for.
Frequently asked questions
Who has to file Form 4137?
Anyone who received $20 or more in cash and charge tips in a calendar month and didn't report all of them to the employer, or whose W-2 shows allocated tips in box 8 that must be reported as income.
What tax rates apply on Form 4137?
6.2% Social Security tax up to the $176,100 wage base for 2025, and 1.45% Medicare tax with no wage base.
Where does the Form 4137 tax go?
The total on line 13 goes on Schedule 2 (Form 1040), line 5. The unreported tips themselves go on Form 1040, line 1c.
Can tips on Form 4137 count toward the tips deduction?
Yes. The IRS instructions say qualified tips reported directly on Form 4137 can be used to figure the qualified tips deduction on Schedule 1-A, up to $25,000.
What is the penalty for not reporting tips to an employer?
A penalty equal to 50% of the Social Security, Medicare and Additional Medicare Tax due on those tips, unless you show reasonable cause.
