Do I Have to Claim Tips on My Taxes?
Senior Finance Writer · 7/1/2026
I've worked with countless tipped workers and their employers on payroll tax issues, and one thing is clear: reporting tip income is a must. Regardless of whether you receive a W-2 with tip income, you must report tips on your tax return. This includes reporting tips on your Form 1040, Line 1, and completing any necessary forms, such as Form 4137.
Key takeaways
- Reported tip income is mandatory, regardless of whether you receive a W-2 with tip income.
- The IRS sets the threshold for reporting tips at $20 or more in cash tips in a month.
- To report tips, use Form 4137 and claim the tip income on Line 1 of Form 1040.
- Failure to report tips may result in penalties, interest, and an audit.
What is the Threshold for Reporting Tips?
The IRS sets the threshold for reporting tips at $20 or more in cash tips in a month (26 CFR 31.6051-1(a)(1)). This is because tip income is subject to federal income tax and FICA taxes (26 U.S.C. ' 3121(a)).
- Report tips on Form 4137, Social Security and Medicare Tax on Unreported Tip Income (irs.gov/forms-pubs/about-form-4137).
- File Form 4137 by April 15th of the following year (irs.gov/forms-pubs/understanding-your-tax-return-form-1040).
How Do I Claim Tips on My Taxes?
To report tips on your taxes, follow these steps:
- Report tip income on Line 1 of Form 1040 (irs.gov/forms-pubs/about-form-1040).
- Complete Form 4137 to report unreported tip income (irs.gov/forms-pubs/about-form-4137).
- Use Schedule 3 (Form 1040) to report additional taxes owed (irs.gov/forms-pubs/about-schedule-3).
I've seen many workers make the mistake of underreporting tip income, but one practical tip I can offer is to keep a log of all cash tips received throughout the month. This will make it much easier to accurately report tip income on Form 4137 and avoid penalties.
Let's consider an example: Jane, a server, receives $500 in cash tips in January and $300 in cash tips in February. Since she receives over $20 in cash tips in a month, she must report these tips on her tax return. She reports the $500 in January on Form 4137 and claims the tip income on Line 1 of Form 1040. She also uses Schedule 3 to report additional taxes owed.
What if I Don't Report Tips?
If you fail to report tips, you may face penalties and interest on unreported tip income. Underreporting tip income can also lead to an audit (irs.gov/tax-pros/how-to-handle-an-audit).
To avoid these consequences, correct any errors or omissions on your tax return as soon as possible.
Key Takeaways
- Do I have to claim tips on my taxes? Yes, you must report tips on your tax return.
- You must report tips if you receive $20 or more in cash tips in a month.
- Report tips on Form 4137 and claim the tip income on Line 1 of Form 1040.
Frequently Asked Questions
What is the threshold for reporting tips?
You must report tips if you receive $20 or more in cash tips in a month (26 CFR 31.6051-1(a)(1)).
How do I report tips on my tax return?
Report tip income on Line 1 of Form 1040 and complete Form 4137 to report unreported tip income (irs.gov/forms-pubs/about-form-4137).
What happens if I don't report tips?
You may face penalties and interest on unreported tip income, as well as an audit (irs.gov/tax-pros/how-to-handle-an-audit).
The IRS provides additional guidance on tipped income taxation through Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips (irs.gov/forms-pubs/about-form-8027).
Remember, the threshold for reporting tips is $20 or more in cash tips in a month, and you must report tips on Form 4137 and claim the tip income on Line 1 of Form 1040.
Table of FICA Tax Rates
| Year | FICA Tax Rate | FICA Tax Rate |
|---|---|---|
| 2023 | 0.062 | 0.153 |
| 2024 | 0.062 | 0.154 |
| 2025 | 0.062 | 0.155 |
The FICA tax rate is subject to change, and you should check the IRS website for the most up-to-date information (irs.gov/tax-pros/employment-tax-rates).
Tip Allocation
Tip allocation is the process of determining how to allocate tip income between employees and employers. The IRS requires employers to report tip income on Form W-2, Wage and Tax Statement (irs.gov/forms-pubs/about-form-w-2).
For more information on tip allocation, see the IRS's guidance on the subject (irs.gov/tax-pros/tip-allocation).
Closing note: This article is intended to provide general information and is not tax advice. Always consult the IRS or a tax professional for specific guidance on your situation.