How Can I Enter Unreported Tips into the ProWeb?  

Earnings from customer tips and hourly wages are subject to Social Security and Medicare taxes. For tipped employees, there are two requirements: 

1. Keep a record of the daily tips. The employee may use a documentation method of their own or the IRS Form 4070A, Employee’s Daily Record of Tips. The following tips should be recorded by the employee: 

• Tips that are paid in cash and currency 
• Tips out of credit card charges 
• Tips that do not involve cash. For instance, tickets and passes amongst others
• Tips that the employee pays to their colleagues and their names. This happens when there exists a sharing arrangement. 

1. Report tips to the employer. Employees are required to report tips in the event that a month’s tips are $20 or in excess of $20. This amount applies differently to every employer. Two taxes can be applied on tips: 

• Income Tax - Box 1 of Form W-2 includes information of tips that have been reported to an employer. All tips are subject to tax, that includes non cash tips and those that are less than $20 in a month. 
• Social Security and Medicare Tax - Using code A or B, report tax that is not collected at the end of the year due to the employee’s wages not being able to withhold tax in Box 12 of Form W-2  

If the employee reports their tipped income during the year to their employer, that income will be included in Boxes 1, 5, 7 and 8 of Form W-2. A month’s tips that are more than $20 but are unreported are reported on Form 4137. This is so that the Social Security and Medicare tax on the said tips can be calculated.  

Depending on whether tips are either $20, more than $20 or less than $20 per month, unreported tips may be entered in the tax return in either of the following places of the Taxx Savage ProWeb: 

1. With the W-2. The sum of all the unreported tips that are $20 or more in a given month are entered in the Unreported Tips box alongside the employer’s W-2. 
2. On Form 4137. The sum of all the unreported tips that are less than $20 in a given month are entered in Form 4137. To do this: 

• Go to the Federal Section of the tax return and select Other Taxse
• Proceed to Tax on Unreported Tip Income - indicate to whom the form belongs if you are filing MFJ.
• As required, enter two amounts: 
• Sum of all the unreported tips that amounted to less than $20 per month
• Tips that were received as either a State, Federal or Local Government Employee. The amount that you enter here is included in the calculation done on Line 12 but is deducted from Form 4137. 

Note: This is not tax advice. It is a guide to entering unreported tips on the Taxx Savage ProWeb. 

For More Information:

Publication 1244, Employee’s Daily Record of Tips and Report to Employer

Publication 531, Reporting Tip Income