Guides / Form 4137

By NorseHorse. Updated October 16, 2026. General information, not tax advice; confirm your situation with a tax professional.

Form 4137 is how you pay Social Security and Medicare tax on tips you got as an employee but didn't report to your employer, including allocated tips in W-2 box 8. You file it with your Form 1040, and the same tips go on your return as income. Tips you report this way can still count toward the federal tips deduction, but you may owe a 50 percent penalty for not reporting them to your employer in the first place.

When you need Form 4137

You must file it if either of these is true:

• You got $20 or more in cash and card tips in a calendar month and didn't report all of them to your employer.
• Your W-2 shows allocated tips in box 8 that you have to report as income.

You have to file a tax return to pay this tax even if you otherwise wouldn't need to file. Form 4137 is only for tips you didn't report to an employer. If you get tips as an independent contractor, it doesn't apply; see the self-employment tax guide instead.

The form, line by line

This follows the 2025 form. The 2026 version is still a draft, and the one change it states is the Social Security wage base on line 7.

• Line 1: one row per employer. Column (c) is all the cash and card tips you received there, including tips you never reported and any allocated tips. Column (d) is what you reported to that employer.
• Lines 2 to 4: total received, total reported, and the difference. Line 4 is your unreported tips, which you also include as income on Form 1040 line 1c.
• Line 5: tips you didn't report because they were under $20 in a month. These aren't subject to Social Security or Medicare tax, so they come back out.
• Line 6: line 4 minus line 5, the tips subject to Medicare tax.
• Lines 7 to 10: the Social Security wage base cap. Line 7 is $184,500 for 2026 ($176,100 on the 2025 form), and line 8 is your Social Security wages and tips from W-2 boxes 3 and 7. Line 10 is the part of your unreported tips still under the cap.
• Line 11: line 10 times 0.062 (Social Security).
• Line 12: line 6 times 0.0145 (Medicare).
• Line 13: the total, which goes on Schedule 2 (Form 1040), line 5.

Worked example

You kept $3,000 in cash tips over the year that you never reported, and every month was over $20. Your W-2 shows $35,000 in boxes 3 and 7, well under the wage base, so all $3,000 is subject to both taxes.

Income tax on the $3,000 comes on top of that, unless the tips deduction covers it. Had you reported the tips to your employer on time, you'd have paid the same $229.50 through payroll and no penalty.

The 50 percent penalty and reasonable cause

Section 6652(b) of the tax code sets the penalty: if you don't report tips to your employer on the date and in the manner required, you pay an extra amount equal to 50 percent of your Social Security and Medicare tax on those tips, on top of the tax itself. It's figured on the payroll tax, not your income tax.

You avoid it if the failure was due to reasonable cause and not willful neglect. To claim that, attach a statement to your return explaining why you didn't report the tips. Don't plan around it. The penalty is the price of skipping a report you could have turned in.

Allocated tips in box 8

Large restaurants have to allocate tips when the staff's reported tips come in under 8 percent of sales. Allocated tips show in box 8 of your W-2, but they aren't in box 1 and nothing was withheld on them. You include them on Form 4137 and as income, unless you have adequate records showing your unreported tips were less than the box 8 amount. In that case you report what your records show. Say box 8 says $2,000 and your daily log shows you only kept $500 in cash you never reported: with a solid log, $500 is the number. Without records, you're stuck with $2,000. Tip allocation and Form 8027 explains how employers figure the allocation.

Form 4137 and the tips deduction

Tips reported on Form 4137 can count as qualified tips for the deduction. Schedule 1-A (the form for the new deductions) has a line for qualified tips included on Form 4137, line 1, column (c), on both the 2025 form and the 2026 draft. The final regulations say tips that weren't reported on a W-2 or 1099 or by you on Form 4137 aren't eligible, and that an employee's tips must be reported to the employer or on Form 4137. The IRS's 2025 guidance has an example of a worker adding $4,000 of unreported tips from Form 4137 to their qualified tips.

Three limits. The tips still have to be qualified: voluntary, and earned in a listed tipped occupation (see the No Tax on Tips guide). The deduction cuts income tax only, so it does nothing to the Form 4137 tax or the penalty. And the 2026 Schedule 1-A is still a draft, so check its final instructions when they come out. I couldn't find IRS guidance that speaks directly to allocated tips and the deduction.

The cheaper route is reporting tips to your employer each month. See reporting tips to your employer and how to claim No Tax on Tips.

Common questions

Do I need Form 4137 if I reported all my tips?

Not for those tips. If every tip you had to report is already on your W-2 and box 8 is empty, there's nothing for Form 4137 to figure. Uncollected tax in box 12 codes A and B goes on Schedule 2, line 13, not Form 4137.

Does filing Form 4137 make the penalty go away?

No. Form 4137 pays the tax. The penalty is separate and is in addition to the tax, unless you show reasonable cause.

Can I use Form 4137 for tips on a 1099?

No. It's only for tips you didn't report to an employer. If you're paid as a contractor, the self-employed tips guide covers how those tips are taxed and deducted.

Where do the unreported tips go as income?

On Form 1040, line 1c, the amount from Form 4137 line 4. The tax from line 13 goes on Schedule 2, line 5.

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