Internal Revenue Service United States Department of the Treasury
Level Basic Intermediate Advanced Military International

Other Taxes

Tip Income

Tips Subject to Other Taxes (continued)

Unreported Tips

If the employee received $20 or more in unreported tips (cash and charge) in any month from any job, the employee must report that income on Form 1040 and pay the social security and Medicare taxes on that income. But, employees who received less than $20 in tips, in any month from any job, are not required to report them to their employer; the tips are not subject to social security or Medicare taxes. These tips must, however, be included on Form 1040.

Tax software hint.

All tips are reported on Form 4137. The tax software calculates social security and Medicare taxes only on the applicable tips and then adds unreported tips to Form 1040, line 7. Refer to the Volunteer Resource Guide (Tab 2), How to Enter Unreported Tips.

Example

Carla is a waitress at a café. Her employer reports the tips that are charged to credit cards, but leaves it up to Carla to keep track of her cash tips, which amount to more than $20 per month. Since Carla doesn't report her cash tips to her employer, they are not included on her Form W-2. Carla includes the unreported tips as income on Form 1040, line 7. She also uses Form 4137 to calculate and pay the social security and Medicare taxes on those tips.