Form 4137: How to Report Unreported Tip Income (2026)

This article is for general information only and is not tax or legal advice. Tip reporting rules change, and your situation may differ. Talk to a CPA or enrolled agent before filing if the numbers are large or the year is complicated.

If you tucked cash tips into your apron without telling the manager, or your W-2 came back with a number in Box 8 you did not recognize, Form 4137 is the IRS form that puts it right. It is a one-page worksheet attached to your 1040, and it pays the Social Security and Medicare tax you skipped when you under-reported tips to your employer.

For 2026, filing it voluntarily costs about 7.65% on the unreported amount. Skipping it and getting caught costs 7.65% plus a 50% penalty plus interest. The math heavily favors filing.

Below is a line-by-line walkthrough, the reasonable-cause statement that waives the penalty, how Form 4137 sits next to Form 4070 and Form 8027, and what the new No Tax on Tips deduction means for the bottom-line check.

What Form 4137 Is (and When You Have to File One)

Form 4137 is titled “Social Security and Medicare Tax on Unreported Tip Income.” In plain English, it pays the employee share of FICA (6.2% Social Security plus 1.45% Medicare) on tips you received but did not report to your employer.

You file Form 4137 if any of the following apply for a single employer in any single month:

You received $20 or more in cash or charge tips and did not give your employer a written report (Form 4070) by the 10th of the next month.
Your W-2 shows allocated tips in Box 8 and your own records do not prove a smaller, more accurate number.
You received tips under $20 in a month and want to settle the Medicare portion (Social Security does not apply below $20).

The form is one page. You attach it to Form 1040, Form 1040-SR, or Form 1040-NR, and the total carries to Schedule 2, line 5 of your 1040 as additional FICA owed. The IRS hosts the current version of Form 4137 on its forms page; print it from there rather than from a third-party copy that may be a year out of date.

Form 4137 Line-by-Line (2026 Tax Year)

Each line maps directly to a number a tipped worker should already have in a daily log. If you tracked nightly, this section takes ten minutes. If you did not, expect to reconstruct from bank deposits, POS reports, and memory, which is slower and less defensible.

Line 1. Name of employer plus tips received. One row per job. If you worked at two restaurants, you fill out two rows.

Line 2. Total cash and charge tips received for each employer. This is everything: cash from the table, card tips from the POS, the venmo from the birthday party. Charge tips your employer already withheld on still count here; the offset comes on line 3.

Line 3. Total tips you actually reported to that employer (via Form 4070, a payroll portal, or however the restaurant collected the number).

Line 4. Subtract line 3 from line 2. This is the unreported tip total, and it is the headline number for the rest of the form. Line 4 is also the number that flows into the No Tax on Tips deduction calculation (more on this below).

Line 5. Tips of less than $20 in a calendar month at a single employer. These are Medicare-only and do not count toward Social Security. If you bartended one slow weekend at a friend’s bar and made $14 in tips that month, that $14 goes here.

Line 6. Subtract line 5 from line 4. This is the Social Security wage base for the unreported amount.

Lines 7 through 10. Apply the Social Security wage cap. For 2025, the cap is $176,100; for 2026 it is $184,500. If your total wages plus tips would exceed the cap, lines 7-10 walk through the reduction. Most tipped workers stay below the cap and pay 6.2% on the full line 6 amount.

Line 11. Medicare tax: 1.45% of line 4 (Medicare has no wage cap, so it applies to every dollar). If you crossed the Additional Medicare Tax threshold (single $200K, married filing jointly $250K), you also owe 0.9% on the amount over that line via Form 8959.

Line 12. Add lines 10 and 11. This is your total FICA owed on unreported tips. It carries to Schedule 2, line 5, and gets paid with the rest of your federal tax bill on April 15.

A worked example helps. A bartender pulled $14,200 in card tips (all reported through the POS) and $9,800 in cash tips she never wrote down. Line 2 reads $24,000. Line 3 reads $14,200. Line 4 reads $9,800. Line 6 also reads $9,800 (no months under $20). Social Security comes to $9,800 x 6.2% = $607.60. Medicare comes to $9,800 x 1.45% = $142.10. Line 12 totals $749.70. That is the check Form 4137 cuts.

The 50% Penalty for Skipping Form 4137 (and the Reasonable-Cause Escape Hatch)

This is the part that gets people through the door. Under IRC Sec. 6652(b), if you fail to report tips to an employer and the IRS catches it, you owe a penalty of 50% of the Social Security, Medicare, and Additional Medicare tax on the unreported tips. That is separate from the tax itself, which you also owe, plus interest from the original due date.

For our bartender above, $749.70 in unreported FICA carries a $374.85 penalty if the IRS finds it through Form 8027 cross-matching before she does. File Form 4137 voluntarily and the penalty exposure disappears.

The penalty is also waivable for reasonable cause. The IRS does not publish a checklist, but reasonable-cause statements that have worked include:

Serious illness or hospitalization during the year.
A language barrier between the worker and management’s tip-reporting process.
An employer who refused to accept written tip reports or did not provide a way to submit them.
First-year mistake by a new worker who did not know the rules.
Death or serious illness in the immediate family.

You attach a short written statement (one or two paragraphs is fine) to the return, signed and dated, explaining the cause. The IRS rules on it after the return is filed. Even if reasonable cause is denied, voluntary disclosure still tends to produce a lower penalty than detection.

The honest read on it: the 50% penalty applies to the FICA, not to the tip income, so it is rarely catastrophic in dollar terms. It is still avoidable, and avoiding it is one form, one statement, fifteen minutes.

How Form 4137 Fits with Form 4070 and Form 8027

Form 4137 lives in a three-form ecosystem. Knowing how they connect makes the whole tip-reporting system click.

Form 4070 (employee to employer, monthly). This is the form you give your employer by the 10th of the month after you earned the tips. Daily entries can use the Form 4070A worksheet. If you submit Form 4070 every month, your tips end up in your W-2 (Box 7 historically; Box 12 code TP with your Treasury Tipped Occupation Code in Box 14b starting tax year 2026). Your employer withholds FICA and federal income tax on it through payroll, and Form 4137 never enters the picture. For the full walkthrough of monthly reporting, see our Form 4070 guide.

Form 8027 (employer to IRS, annual). Large food and beverage employers (more than 10 tipped employees on a typical day) file this every year. It reports total receipts and total reported tips. If reported tips fall below 8% of gross receipts at that establishment, the employer must allocate the shortfall across tipped employees. That allocation lands in W-2 Box 8 and is the second-most-common reason workers end up on Form 4137. The IRS reads Form 8027 alongside individual W-2s; the gaps it spots are the audit pool. For a deeper read on what Box 8 means, see our piece on allocated tips in Form 8027.

Form 4137 (employee to IRS, annual). The year-end fix. It catches everything Form 4070 missed and overrides Box 8 if your own records show a different number.

The mental model: Form 4070 is the monthly checkpoint, Form 8027 is the employer’s annual report card, and Form 4137 is the worker’s chance to true everything up before the IRS does the math itself.

Form 4137 and the No Tax on Tips Deduction (OBBBA, TD 10044)

This is the section most older guides on Form 4137 do not have. The One Big Beautiful Bill Act added IRC Sec. 224, and Treasury and the IRS finalized the regulations on April 13, 2026 (TD 10044). The combined effect changes the after-tax cost of filing Form 4137 in a way most tax pros are still updating their forms checklists to handle.

The final regulations confirm that unreported tips entered on Form 4137 line 4 count as “qualified tips” for the new Sec. 224 deduction, up to $25,000 per return per year, for tax years 2025 through 2028. That means the same tips you are paying FICA on through Form 4137 also reduce your federal income tax on Schedule 1-A.

Here is the critical distinction. The deduction wipes out the federal income tax on qualified tips. It does not wipe out Social Security or Medicare. Form 4137 still applies in full to the FICA side. The combined effect for an honest filer who tracked tips but did not give the monthly report to the employer:

Pay 7.65% via Form 4137 (the FICA you owed regardless).
Deduct the same dollars on Schedule 1-A so you owe $0 federal income tax on them.

Compare that to the cost of burying the tips and getting caught: 7.65% FICA + 50% penalty (3.825% effective) + 12% to 22% federal income tax (no deduction available on detected, undisclosed amounts in many enforcement scenarios) + interest. The honest path costs roughly a third of the punishment path.

Eligibility for the deduction requires that your occupation appear on the IRS list of jobs that customarily and regularly receive tips. Servers, bartenders, baristas, delivery drivers, hairstylists, nail technicians, massage therapists, and most other tipped workers are on the list. For the full eligibility check, see our breakdown of the final IRS occupation list, and for how the deduction works end to end see the No Tax on Tips guide.

One more wrinkle: married filers must file jointly to claim Sec. 224, and a valid Social Security number is required on the return. Both rules are flat denials if missed.

Building a Defensible Tip Record (and Why a Daily Log Beats Memory)

Form 4137 only works as well as the numbers you put on it. The IRS expects a contemporaneous daily log under Publication 531: date, cash tips received, charge tips received, tip-out paid, and the name of the employer. A drawer full of receipts is not a log. A spreadsheet you filled in once a quarter is not a log. The standard is “kept at or near the time the tips were received.”

Three habits will keep you out of the 50% penalty conversation entirely:

Enter every shift before you leave the parking lot. Thirty seconds while the cash is still folded in your hand beats trying to reconstruct three weeks later. If you reported $0 in cash that night, write down $0; gaps in the log look like missing days, not zero days.
Export a monthly PDF and email it to yourself. That email timestamp is the contemporaneous-record proof a CPA or IRS examiner wants to see. A log you can produce on demand is worth ten times a log that lives only on a phone you might lose.
At year-end, run a 12-month CSV and reconcile against W-2 Box 7 and Box 8. If your log matches Box 7, you do not need Form 4137. If your log is higher than Box 7, the gap goes on Form 4137 line 4. If your log is lower than Box 8 (allocated tips), your log overrides Box 8 and you attach it as proof.

Server44 captures exactly the fields IRS Publication 531 asks for: date, cash, card, tip-out, hours, employer, and notes. The monthly PDF export and the 12-month CSV export are the two reports that translate directly into Form 4070 (monthly to the employer) and Form 4137 (year-end to the IRS). The tip income goal calculator on the tools hub helps if you want to back into a target tip volume after seeing the FICA math above.

Two more record-keeping notes. Keep records for at least three years after filing; six if you under-reported by more than 25% of gross income, and indefinitely if you never filed. If the IRS questions allocated tips in Box 8, the log is what gets the number reduced; a sworn statement without backup almost never wins.

References

Frequently Asked Questions

Do I have to file Form 4137 if my employer already withheld taxes on my reported tips?

No. Form 4137 only covers the portion of tips you did not report to your employer. Tips that already appear in W-2 Box 7 are settled. The form picks up cash tips you pocketed quietly and allocated tips in Box 8 that you cannot back out with records.

What happens if I forget to file Form 4137 and the IRS finds out?

You owe the unpaid Social Security and Medicare tax, plus a 50% penalty on that amount under IRC Sec. 6652(b), plus interest from the original due date. Filing Form 4137 voluntarily costs you the tax (about 7.65%) but avoids the penalty layer that the IRS adds when it discovers the gap first.

Are tips under $20 a month subject to Form 4137?

Yes for Medicare (1.45%), no for Social Security. Months under $20 at a single employer go on line 5 of Form 4137 and only feed the Medicare calculation on line 11. Months at or above $20 flow through lines 2 through 4 and pick up both Social Security and Medicare.

Does the No Tax on Tips deduction eliminate what I owe on Form 4137?

No. The Sec. 224 deduction reduces federal income tax on up to $25,000 of qualified tips per year. Form 4137 covers Social Security and Medicare, which the deduction does not touch. Unreported tips entered on line 4 still count as qualified tips for the deduction, so you can claim both.

Can I use a tip log as proof of my actual tips if the IRS challenges allocated tips in W-2 Box 8?

Yes. A contemporaneous daily record that lists date, cash tips, charge tips, tip-out paid, and employer is exactly what Publication 531 asks for. If your log shows lower numbers than Box 8, you report your log totals on Form 4137 and attach a statement explaining the discrepancy.

What is the difference between Form 4137 and Form 4070?

Form 4070 is the monthly report you give your employer by the 10th of the following month. Form 4137 is the year-end fix you attach to Form 1040 when you skipped Form 4070 or under-reported on it. Using Form 4070 every month means you never need Form 4137.

Will filing Form 4137 trigger an audit?

Filing it correctly is the opposite of an audit risk. The IRS audit selection process targets gaps between Form 8027 employer reports and individual W-2s, not workers who self-correct on Form 4137. Compliance moves you out of the high-risk pool, not into it.

Can I file Form 4137 if I am self-employed (gig delivery, hairstylist with booth rental)?

Generally no. Self-employed workers report tips as part of gross receipts on Schedule C and pay self-employment tax through Schedule SE. Form 4137 is for W-2 employees who failed to report tips to an employer. If you wear both hats (a W-2 server who also drives delivery on the side), Form 4137 covers the W-2 side only.