What's New. For 2006, the maximum amount of wages and tips subject to social security tax is $94,200.
Purpose of form. Use Form 4137 to figure the social security and Medicare tax owed on tips you did not report to your employer, including any allocated tips shown on your Form(s) W-2 that you must report as income. Also, use Form 4137 to figure the social security and Medicare tips to be credited to your social security record.
Who must file. You must file Form 4137 if you received cash and charge tips of $20 or more in a calendar month and did not report all of those tips to your employer. You must also file Form 4137 if box 8 of your Form(s) W-2 shows allocated tips that you must report as income.
Allocated tips you must report as income. You must report as income on Form 1040, line 7, or Form 1040NR, line 8, at least the amount of allocated tips shown in box 8 of your Form(s) W-2 unless you can prove a smaller amount with adequate records. If you have records that show the actual amount of tips you received, report that amount even if it is more or less than the allocated tips. Although allocated tips are shown on your Form W-2, they are not included in the wages, tips, and other compensation box (box 1) on that form and no income tax, social security tax, or Medicare tax has been withheld from these tips.
Tips you must report to your employer. You must give your employer a written report of cash and charge tips if you received $20 or more in tips during a month. If, in any month, you worked for two or more employers and received tips while working for each, the $20 rule applies separately to the tips you received while working for each employer and not to the total you received. You must report your tips to your employers by the 10th day of the month following the month you received them. If the 10th day of the month falls on a Saturday, Sunday, or legal holiday, give your employer the report by the next business day.
Employees subject to the Railroad Retirement Tax Act. Do not use Form 4137 to report tips received for work covered by the Railroad Retirement Tax Act. In order to get railroad retirement credit, you must report these tips to your employer.
Payment of tax. Tips you reported to your employer are subject to social security and Medicare tax (or railroad retirement tax) and income tax withholding. Your employer collects these taxes from wages (excluding tips) or other funds of yours available to cover them. If your wages were not enough to cover these taxes, you may have given your employer the additional amounts needed. Your Form W-2 will include the tips you reported to your employer and the taxes withheld. If there was not enough money to cover the social security and Medicare tax (or railroad retirement tax), your Form W-2 will also show the tax due in box 12 under codes A and B. See the instructions for line 63 of Form 1040, or line 58 of Form 1040NR, to find out how to report the tax due.
Penalty for not reporting tips. 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. You can avoid this penalty if you can show reasonable cause for not reporting these tips to your employer. To do so, attach a statement to your return explaining why you did not report them.
Additional information. See Pub. 531, Reporting Tip Income.
Line 1. Include all cash and charge tips received. This includes the following:
Line 4. Enter only the tips you were not required to report to your employer because the total received was less than $20 in a calendar month. These tips are not subject to social security and Medicare tax.
Line 9. If line 5 includes tips you received for work you did as a federal, state, or local government employee and your pay was subject only to the 1.45% Medicare tax, subtract the amount of those tips from the line 5 amount only for the purpose of comparing lines 5 and 8. Do not reduce the actual entry on line 5. Enter "1.45% tips" and the amount you subtracted on the dotted line next to line 9.
Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by Internal Revenue Code section 6103.
The average time and expenses required to complete and file this form will vary depending on individual circumstances. For the estimated averages, see the instructions for your income tax return.
If you have suggestions for making this form simpler, we would be happy to hear from you. See the instructions for your income tax return.