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What if I Don't Report Tip Income?

Since a lot of tip income are in cash and are often untraceable, some people think it is ok to not report tip income. Below are what would happen if you don't report tip income. Bear in mind that some tips are not required to be reported to you employer but they still need to be reported to the IRS.

What are the taxes on tips not required to reported?

Tips you were not required to report to your employer:

  • are subject to income tax but
  • are not to social security or Medicare taxes.

These tip income and the value of noncash tips must be included in your gross income on the tax form 1040. Add the cash (including credit card and tip pool) and noncash tips you received but did not report to your employer to your Box 1 wages from the form W-2 and enter the total on line 7 of form 1040.

Don't Report Tip Income

What happens if I did not report tip income to employer?

If you don't report tip income of $20 or more per month to your employer as required, add these unreported tips to box 1 amount and enter the total on line 7 of the form 1040 along with wages and salaries. Since you did not report these tip income to your employer, the social security and Medicare taxes were not withheld on these tip income so you will have to pay the social security and Medicare taxes on these tips.

How to pay social security and Medicare taxes on unreported tip income?

To pay the social security and Medicare taxes on unreported tip income, use the tax form 4137 Social Security and Medicare Tax on Unreported Tip Income to figure out the tax you owe the IRS and report the tax on line 59 of the form 1040 (Unreported Social Security and Medicare Taxes).


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