To report tips on your taxes, start with your W-2. Tips you reported to your employer are already in Box 1. Add any tips you didn't report to your employer, and any allocated tips in Box 8, using Form 4137 with your Form 1040. Then, if you qualify, deduct up to $25,000 of qualified tips on Schedule 1-A.
Key takeaways
- Tips reported to your employer are already in W-2 Box 1 (wages, tips, other compensation) and Box 7 (Social Security tips).
- Form 4137 adds unreported and allocated tips, and figures the Social Security and Medicare tax on them.
- Self-employed workers report tips as business income on Schedule C.
- The No Tax on Tips deduction goes on Schedule 1-A (2025–2028).
Step 1: Check what your W-2 already includes
| W-2 box | What it shows |
|---|---|
| Box 1 | Wages plus the tips you reported to your employer |
| Box 7 | Social Security tips you reported |
| Box 8 | Allocated tips (not included in Boxes 1, 5, or 7) |
| Box 12, codes A and B | Social Security and Medicare tax on tips your employer couldn't collect |
| Box 12, code TP (2026 forms on) | Total cash tips you reported to your employer |
| Box 14b (2026 forms on) | Your Treasury Tipped Occupation Code(s) |
Step 2: Add tips you didn't report to your employer
Cash tips you kept off your reports to your employer, including tips under $20 in a month if you want Social Security credit for them, go on Form 4137. The form adds them to your wages and figures your Social Security and Medicare tax on them (https://www.irs.gov/forms-pubs/about-form-4137). More: https://ttoccodes.com/blog/form-4137-for-underreported-tips .
Step 3: Handle allocated tips (Box 8)
Report allocated tips on Form 4137 too, unless you have adequate records showing you actually received less than the allocated amount (https://www.irs.gov/businesses/small-businesses-self-employed/tip-recordkeeping-and-reporting). Details: https://ttoccodes.com/blog/allocated-tips-vs-unreported-tips-form-8027 .
Step 4: Pay uncollected tax from Box 12
If your W-2 shows uncollected Social Security or Medicare tax on tips in Box 12 (codes A and B), you pay it with your Form 1040 as an additional tax.
Step 5: Claim the No Tax on Tips deduction
- Up to $25,000 of qualified tips per year for 2025–2028, claimed on Schedule 1-A (Form 1040).
- The deduction phases out once MAGI is over $150,000 ($300,000 joint). Married taxpayers must file jointly, and you need a valid SSN.
- Tips must be reported on a W-2, 1099, or Form 4137, and earned in an occupation on the Treasury list.
- For 2025, you can use W-2 Box 7 or your own tip reports to your employer, plus any tips on Form 4137, to figure qualified tips.
Estimate it: https://ttoccodes.com/tools/tip-deduction-estimator . IRS summary: https://www.irs.gov/newsroom/what-the-no-tax-on-tips-deduction-means-for-you .
If you're self-employed
Tips are part of your gross receipts on Schedule C and are subject to self-employment tax. You can still claim the tip deduction on Schedule 1-A, limited to your net income from that business, if you keep records to support the qualified tips.
Where do I report cash tips on my tax return?
Cash tips you reported to your employer are already in W-2 Box 1, so they go on Form 1040 with your wages. Cash tips you didn't report to your employer go on Form 4137, which you attach to Form 1040.
Do I need Form 4137 if all my tips are on my W-2?
Usually not. If you reported all your tips to your employer and your W-2 has no allocated tips in Box 8, the tips are already in Box 1 and Social Security and Medicare were withheld. Form 4137 is for unreported and allocated tips.
What happens if I don't report my tips?
You still owe the tax, plus interest. Tips you didn't report to your employer can also bring a penalty of 50% of the Social Security and Medicare tax owed on them. See our guide to the consequences of not reporting tips.
This article is general information, not tax advice. Confirm your situation with the current IRS instructions linked above or a tax professional.