If I file Form 4137 for unreported tips, can those tips still qualify?
The short answer
Yes. Tips you report on Form 4137 can count as qualified tips for the federal deduction if the other §224 rules are met (occupation list, voluntary cash tips, SSN, joint return if married, cap and phase-out). Employees also use Form 4137 to compute Social Security and Medicare on tips not reported to the employer. For 2025, Notice 2025-69 describes transition methods before W-2s added tip codes. Claim the deduction on Schedule 1-A Part II, not on Form 4137 alone.
Example math
Unreported cash tips for the year: $3,000. You complete Form 4137 for those tips. Other reported qualified tips: $12,000. Single; MAGI under the phase-out.
- Rough qualified tips = $15,000 (reported + Form 4137), if all otherwise qualify.
- Cap: min($15,000, $25,000) = $15,000.
- Illustrative income-tax savings at 22% ≈ $3,300 (illustrative rate; enter your own marginal rate).
- Separately, Form 4137 still drives FICA on the unreported tips. The deduction does not waive payroll tax.
Not tax advice.
Check your estimate
Include Form 4137 tips in your annual qualified-tips estimate only if you will actually report them that way.
Open the calculator
Plain English
What Form 4137 is for
Employees use Form 4137 to figure Social Security and Medicare on tips not reported to the employer. IRC §224 and IRS tip guidance allow tips reported on Form 4137 to count toward the qualified tips deduction.
2025 vs 2026 paperwork
- 2025: Notice 2025-69 treats this as a transition year. W-2 tip boxes were unchanged, and employees may use the box 7, Form 4070, or Form 4137 methods described in the notice.
- 2026: Employers use box 12 code TP and box 14b (Treasury Tipped Occupation Code) for clearer reporting. See W-2 box 12 code TP.
Common mistakes
- Filing Form 4137 but forgetting Schedule 1-A Part II.
- Thinking Form 4137 “pays the tip tax,” so the income-tax deduction is automatic without the occupation, SSN, and joint-filing rules.
- Using TipMax as a substitute for Form 4137.
Official sources
Last verified:
Sources checked: IRS tip recordkeeping page, Notice 2025-69, Form 4137, Schedule 1-A, and IRC §224. Confirmed: tips reported on Form 4137 can count toward qualified tips, and Notice 2025-69 sets the 2025 transition-year reporting methods.