All you Need to Know about IRS Tax form 4137

IRS Tax form 4137

Are you working in the customer-based industry, especially in the hospitality area? Are you an employee who receives tips for remarkable services? Do you report them to your employer? If no, this article is for you. Here we are going to enlighten you about allocated tips, the form 4137, & when it should be filled.

What are Allocated Tips?

An employer assigns tips to the employee as an income. If the employee fails to report sufficient tips during the tax year, these tips are known as allocated tips. 

As per IRS, the employer should allocate tips if: 

  • An employee works in a food or beverage company.
  • An employee receives tips from the customers as a custom
  • Employee’s reported tips are less than 8% of his/her share of the sales. 

What is the form 4137?

Form 4137 calculates the Social Security and Medicare tax, which one employee owes on his/her unreported tips. The tips that are reported have taxes applied already. The employer does not withhold the charges on the unpublished tips.

Instructions for filling the form 4137

Below are step-wise instructions for filling out the form 4137:

1. List out the companies to whom you did not report the tips. Put the employer’s ID numbers in the given section. Enter the total tips you received published as well as unreported from each company.

Total tips you received include:

  1. Reported tips to the employer
  2. Cash tips
  3. Tips received through credit card
  4. Unreported tips to the employer
  5. Tips below $20 per month
  6. Tips from Box-8 of W-2, i.e., allocated tips

2. One can find out about the reported tips to the employer in box 7 of the W-2.

3. Subtract the reported tips from the total tips. You will get the extra tips to add in your wages while filing form 1040.

4. Find the complete cash tips that sum-up less than $20 per month, as these were not to be reported. 

5. Now subtract the cash tips from the extra tips from step 4. These tips are for Medicare tax. Enter this number in Line 6.

6. The social security wages are pre-decided, and one can see it as pre-filled in the form.

7. Take the summation of all the reported wages and tier 1 railroad retirement benefits, if any.

8. Subtract the salaries and social security wage. If this value is less than 0 put 0 in step nine and step 10  

9. Compare the number obtained on step 6 that is Medicare tax, and the number from the previous step. Pick the smallest of both and enter in step 10

10.  Multiply the number from step 10 with 0.062 as Social Security is 6.2%

11. Multiply the number from step 6 with 0.062 as Medicare tax is 6.2%

12. Add the numbers from step 11 and step 12. This is the Medicare and Social Security tax on the unreported tips.


Here we have mentioned all the brief details of form 4137. We hope you are clear regarding allocated tips and instructions for filing.