IRS Form 4137, officially titled Social Security and Medicare Tax on Unreported Tip Income, is the tax form used by employees who received tip income but did not report all of those tips to their employer during the year. In plain English, it is the IRS’s way of saying, “Nice tip jar. Now let’s make sure the payroll taxes are handled correctly.”
If you work as a server, bartender, hairstylist, bellhop, delivery driver, valet, casino worker, salon employee, rideshare driver, or in another tipped job, your tips are generally taxable income. That includes cash tips, credit card tips, debit card tips, tips shared through a tip pool, and sometimes allocated tips shown on your Form W-2. Form 4137 helps calculate the Social Security and Medicare tax you owe on tips that were not already processed through payroll.
This form does not replace your Form W-2, and it does not magically turn unreported tips into tax-free money. Think of it more like the cleanup crew after a busy restaurant shift: not glamorous, but very necessary if you want everything squared away before you file your federal tax return.
What Is IRS Form 4137 Used For?
IRS Form 4137 is used to figure the employee portion of Social Security and Medicare taxes on tip income that was not reported to an employer. Normally, when you report tips to your employer, the employer includes those tips in payroll records and withholds the required taxes from your wages. But if tips were not reported, payroll taxes may not have been collected. That is where Form 4137 enters the chat, wearing a very practical cardigan.
The form is commonly used for two major situations:
- You received cash or charge tips of $20 or more in a calendar month from one employer and did not report all of those tips to that employer.
- Your Form W-2 shows allocated tips in Box 8 that must be reported as income.
The form calculates the Social Security and Medicare taxes owed on those tips. The amount is then carried to your federal tax return as an additional tax. At the same time, filing Form 4137 helps credit the tip income to your Social Security record, which can matter later when benefits are calculated.
Who Needs to File Form 4137?
You may need to file Form 4137 if you are an employee who received tips and one of the following applies:
1. You Did Not Report All Tips to Your Employer
Employees who receive $20 or more in tips during a calendar month from one employer are generally required to report those tips to that employer by the 10th day of the following month. For example, tips received in March should usually be reported by April 10. If April 10 falls on a weekend or legal holiday, the deadline moves to the next business day.
If you forgot, underestimated, or simply did not report all your tips, Form 4137 may be required when you file your tax return. The IRS is not impressed by the “my apron ate my records” defense, so accurate tip tracking helps.
2. Your W-2 Shows Allocated Tips in Box 8
Allocated tips are amounts your employer assigns to you when the business’s reported tips are below a required percentage of sales. This often happens in large food and beverage establishments. Allocated tips appear in Box 8 of Form W-2, and they are not usually included in Boxes 1, 3, 5, or 7.
If Box 8 has an amount, you may need to include those allocated tips as income and use Form 4137 to calculate Social Security and Medicare tax. However, if you have reliable daily records proving that you actually received less than the allocated amount, you may be able to report the smaller documented amount. This is one reason a daily tip log is worth more than a napkin with “probably around $60?” written on it.
3. You Had Tips Below $20 Per Month
If your tips from one employer were less than $20 in a calendar month, you are not required to report those tips to that employer. However, you still must report them as income on your federal tax return. These small tips are subject to federal income tax, but they are not reported to the employer for payroll withholding in the same way as monthly tips of $20 or more.
What Counts as Tip Income?
Tip income is broader than the crumpled cash left under a coffee cup. The IRS generally treats all tips as income, including:
- Cash tips received directly from customers
- Tips paid by credit card, debit card, or electronic payment
- Tips received from other employees through tip sharing or tip pooling
- Allocated tips reported in Box 8 of Form W-2
- Noncash tips, such as tickets or items of value, which must be included as income on your tax return
Noncash tips are taxable as income, but they are treated differently for employer reporting purposes. They do not get reported to your employer as cash tips, but they should still be included on your tax return. For example, if a customer gives a salon worker concert tickets instead of cash, that value may still be taxable income. The IRS does not say, “Oh, it was a cool gift? Never mind.”
How Form 4137 Works
Form 4137 gathers your unreported tip income and calculates the Social Security and Medicare tax due. The form asks for information such as your employer’s name, tips reported to your employer, tips not reported, and any allocated tips from your W-2.
Here is the basic flow:
- List the employer or employers connected to the unreported tips.
- Enter the tips that were not reported to each employer.
- Include allocated tips from Form W-2 Box 8 when required.
- Subtract certain tips that were not subject to Social Security and Medicare tax, if applicable.
- Calculate Social Security tax and Medicare tax on the taxable tip amount.
- Transfer the final tax amount to your Form 1040 as an additional tax.
The Social Security portion generally applies up to the annual Social Security wage base, while Medicare tax applies more broadly. Higher-income taxpayers may also need to consider Additional Medicare Tax, which is handled separately, typically using Form 8959.
A Simple Example of Form 4137
Let’s say Maya works as a restaurant server. During the year, she reported most of her credit card tips through payroll, but she forgot to report $1,200 in cash tips. Her employer did not withhold Social Security or Medicare tax on that $1,200 because the employer did not know about it.
When Maya files her tax return, she uses Form 4137 to calculate the payroll taxes on the unreported $1,200. Ignoring wage base limitations for simplicity, the tax would be:
- Social Security tax: $1,200 × 6.2% = $74.40
- Medicare tax: $1,200 × 1.45% = $17.40
- Total Social Security and Medicare tax: $91.80
Maya must also include the $1,200 as income on her federal tax return. Form 4137 does not replace income reporting; it calculates the missing Social Security and Medicare tax. In other words, the form is not a “get out of taxes” coupon. The IRS has not released that coupon, and frankly, the printer may never be invented.
Form 4137 vs. Reporting Tips to Your Employer
The best way to avoid Form 4137 headaches is to report tips to your employer on time. When you report tips properly, your employer can include them in payroll and withhold the correct federal income tax, Social Security tax, and Medicare tax.
Employees may use Form 4070, Employee’s Report of Tips to Employer, or any written statement that includes the required information. Many workers also use Form 4070A, Employee’s Daily Record of Tips, to keep a daily log. A tip diary may not sound thrilling, but it can save you from reconstructing six months of income from memory, bank deposits, and panic.
What Should a Tip Report Include?
A written tip report to your employer should generally include your name, address, Social Security number, employer information, the month or period covered, the total tips received, and your signature. It should be submitted by the 10th day of the month after the tips were received.
For example, if you received $850 in tips in June, you would usually report those June tips to your employer by July 10. Your employer then uses that information to withhold taxes and include the correct amounts on your W-2.
What Are Allocated Tips?
Allocated tips are tips assigned by an employer, usually in large food or beverage businesses, when total tips reported by employees are less than a required percentage of gross receipts. These tips are shown in Box 8 of Form W-2.
Allocated tips can surprise employees because they may not have been paid directly through payroll and may not have had taxes withheld. If you see an amount in Box 8, do not ignore it. Review your daily records. If the allocated amount matches or is less than what you actually received but did not report, it may need to be included. If the allocated amount is higher than your real tips and you have strong records to prove it, those records become very important.
This is why tip tracking is not just for accountants with color-coded folders. It is for anyone who wants to avoid guessing during tax season while staring at a W-2 like it just insulted their family.
How the New Tip Deduction Affects Form 4137
For tax years 2025 through 2028, certain workers may be eligible for a federal income tax deduction for qualified tips, sometimes casually called “no tax on tips.” However, that phrase can be misleading. The deduction may reduce federal taxable income for qualifying tips, but it does not automatically remove Social Security and Medicare tax responsibilities.
That means Form 4137 can still matter. If qualified tips were not reported through payroll and are reported directly on Form 4137, they may be relevant both for payroll tax reporting and for determining whether a taxpayer can claim the qualified tip deduction on the newer Schedule 1-A. The key point is simple: “No tax on tips” does not mean “no reporting.” It also does not mean “hide the cash in a shoebox and hope the shoebox has legal training.”
Because tax law changes can be detailed and temporary, workers should review the current IRS instructions for the year they are filing or ask a qualified tax professional when large tip amounts are involved.
Common Mistakes to Avoid With IRS Form 4137
Mistake 1: Thinking Cash Tips Are Invisible
Cash tips are taxable income. The fact that a tip arrived in paper form does not make it disappear from the tax system. If you received it for your work, it generally belongs in your income records.
Mistake 2: Ignoring Box 8 on Form W-2
Box 8 allocated tips are easy to miss because they are not the same as wages in Box 1 or Social Security tips in Box 7. But Box 8 can trigger Form 4137 reporting, so it deserves attention.
Mistake 3: Not Keeping Daily Records
A daily tip log is your best defense against confusion. Record cash tips, card tips, tips paid out to coworkers, tip-pool amounts, and noncash tips. Waiting until tax season to remember January tips is like trying to remember what you had for lunch 11 Tuesdays ago. Technically possible, emotionally unlikely.
Mistake 4: Using Form 4137 Instead of Correcting Payroll
Form 4137 is not a substitute Form W-2. If your W-2 is wrong because your employer made an error, you may need a corrected W-2. Form 4137 is mainly for calculating Social Security and Medicare tax on tips you did not report to your employer or allocated tips you must report.
How to Prepare Before Filing Form 4137
Before completing Form 4137, gather your records. You may need:
- Your Form W-2 from each tipped job
- Amounts shown in Box 7 for Social Security tips
- Amounts shown in Box 8 for allocated tips
- Your daily tip records or tip diary
- Monthly reports submitted to your employer
- Records of tip-outs, tip pooling, or shared tips
- Any noncash tip values included as income
If you use tax software, the program may generate Form 4137 after you enter unreported tips or allocated tips. Still, you should understand what the software is doing. Tax software is helpful, but it is not psychic. If you enter the wrong numbers, it will confidently calculate the wrong result with impressive digital enthusiasm.
Experience-Based Tips for Handling IRS Form 4137
In real life, Form 4137 problems often start long before tax season. They usually begin during a busy shift when a worker is juggling customers, side work, schedules, and the eternal mystery of why table 12 needs six extra sauces. Tip reporting becomes “I’ll do it later,” and later becomes April.
The best practical habit is to track tips daily, even if the system feels boring at first. A simple notes app, spreadsheet, envelope system, or printed Form 4070A can work. The format matters less than consistency. Record the date, cash tips, card tips, tip-outs, and any shared tip-pool amounts. If your workplace gives you a checkout report at the end of each shift, keep a copy or photo. Those small records can become very useful if your W-2 shows allocated tips or if your tax software asks for details you cannot remember.
Another helpful experience-based habit is comparing your personal records with your pay stubs throughout the year. Do not wait until your W-2 arrives. If your pay stub shows reported tips, Social Security tips, or taxable wages that look wrong, ask your payroll department early. Payroll issues are easier to fix in July than in April, when everyone is filing taxes and the office printer has chosen violence.
For workers in restaurants and hospitality, tip pooling deserves special attention. If you receive $200 in tips but pay $40 to bussers, runners, or bartenders under a required tip-out system, your records should show both the amount received and the amount paid out. Without that detail, you may accidentally overstate your income. Good records help show what you actually kept.
Allocated tips can also feel unfair when they do not match reality. Suppose your W-2 shows $3,000 in allocated tips, but your daily records show that you received only $2,100 in actual tips not already reported. Good documentation may help you report the correct amount instead of blindly accepting the allocation. Without records, however, it becomes much harder to challenge the number.
Workers should also remember that reporting tips can help them beyond basic tax compliance. Reported tip income can affect Social Security credits, loan applications, apartment applications, and proof of income. While nobody enjoys paying taxes, underreporting income can create problems when you later need to prove what you earned. In that sense, Form 4137 is not only about paying what was missed; it is also about making your work history more complete.
The biggest lesson is simple: tip income is easiest to manage in small daily pieces. Five minutes after each shift can prevent five hours of tax-season detective work. Your future self will be grateful, and your calculator may finally know peace.
Conclusion: Form 4137 Is Small, but It Matters
IRS Form 4137 is a focused tax form with an important job: calculating Social Security and Medicare tax on unreported tip income. If you received tips that were not reported to your employer, or if your W-2 includes allocated tips in Box 8, this form may be part of your federal tax return.
The smartest approach is to report tips to your employer on time, keep daily records, review your W-2 carefully, and understand how unreported tips affect both income tax and payroll tax. Tips may arrive one dollar at a time, but by tax season, those dollars can form a very organized line outside the IRS’s office.
Note: This article is for general educational purposes and is based on current IRS guidance and reputable U.S. tax education resources. Tax rules can change, and individual situations vary, so taxpayers with complex tip income should review the official IRS instructions for the filing year or consult a qualified tax professional.
