You may receive tips for work or services you performed but you didn't report the tips to your employer. Since you didn't report these tips to your employer, the income is not included in your total wages. Therefore, your employer was not able to withhold any tax (Income, Social Security or Medicare) on that income during the year. Therefore, you will have to:
- Add the tips to your total income to calculate the income tax AND
- Add Form 4137 to calculate the Medicare and Social Security Tax on the tip income
How do I add the tip income to my total income amount?
To include the tips you did not report to your employer in your income, add the tip amount to the amount listed in Box 1 of your W-2. The program will add the tips to your total income to correctly calculate the income tax.
Note: The amount listed in Box 8 (if any) is tips that were allocated to you by your employer (tip pooling, etc.) This amount is automatically pulled into the total income amount.
How do I calculate the Medicare and Social Security Tax on my unreported tip income?
To calculate the Medicare and Social Security tax on the tips not reported to your employer, you must also file Form 4137.
You can find this form by going to:
- Federal Section
- Income
- Other Taxes
- Social Security and Medicare Tax on Unreported Tip Income (Form 4137)
By entering some basic information about your employer and the amount of tips received, the program will automatically fill in this form and calculate your taxes for you.
If you did not report tips to your employer as required, you may be charged a penalty equal to 50% of the Social Security and Medicare tax due on those tips. For more information, please review Publication 531.