What happens if I don’t report my cash tips?
The short answer
Example math
Say you kept $400 in cash tips in March and never reported them to your employer (illustrative). Social Security and Medicare are shown at the 2026 employee rates: 6.2% and 1.45%, 7.65% together.
| Line | Amount |
|---|---|
| Cash tips not reported to your employer | $400.00 |
| Social Security and Medicare on them, figured on Form 4137 | $30.60 |
| Possible penalty: 50% of that tax | $15.30 |
| Income tax on the $400 | Depends on your whole return |
- The $30.60 is owed either way. It goes on your return as extra tax.
- The $15.30 penalty is on top, unless you can show reasonable cause for not reporting to your employer.
- The $400 is income on your return too, like every other tip.
Not tax or legal advice. The numbers are made up. Social Security tax stops at the yearly wage base ($184,500 for 2026).
Plain English
Two separate duties
IRS Publication 531 gives tipped employees three jobs: keep a daily tip record, report tips to your employer, and report all your tips on your tax return. Skipping the employer report doesn’t take the tips off your return. It changes how the tax gets paid, and it can add a penalty.
What you had to report to your employer
You report cash, check, and debit and credit card tips you receive. If your tips from one job are less than $20 for a month, you don’t report them to that employer for that month. The report for each month is due by the 10th of the next month. If you’re in a tip pool, report only the tips you keep, plus any tips other employees pass to you.
What happens on your tax return
If you got $20 or more in cash and charge tips in a month from one job and didn’t report all of them to your employer, IRS says you must report the Social Security and Medicare tax on those tips as extra tax on your return. You figure it on Form 4137 and attach it. You have to file a return for this even if you otherwise wouldn’t. For how Form 4137 interacts with the tip deduction, see If I file Form 4137, can those tips still qualify?
The penalty
IRS says that if you don’t report tips to your employer as required, you may owe a penalty equal to 50% of the Social Security and Medicare tax you owe on the unreported tips. The penalty is in addition to the tax. You can avoid it if you can show reasonable cause for not reporting them. To do that, you attach a statement to your return explaining why.
It also costs you later
IRS says reporting tips lets your employer report your correct earnings to Social Security, which affects your benefits when you retire or if you become disabled. See Do tips count toward Social Security?
What to do now
- Start reporting this month’s tips by the 10th of next month, through your employer’s system or a signed, dated statement.
- For past tips you didn’t report, include them on your return and use Form 4137 for the Social Security and Medicare tax.
- If you had a real reason for not reporting, write it down for the reasonable-cause statement.
- If you’re unsure how this applies to you, ask a tax professional or the IRS.
Common mistakes
- Thinking cash tips don’t count because there’s no record of them.
- Reporting tips on your return but never to your employer. The tax is paid, but the penalty can still apply.
- Reporting the tips you handed to a busser or bartender. Report only what you kept.
- Waiting until tax time to add up the year. The report is monthly, by the 10th.
Official sources
Last verified:
Checked IRS Publication 531 (revised December 2024): what tips to report, the $20 monthly rule, the 10th-of-the-month deadline, the 50% penalty and reasonable-cause statement, and Form 4137. Checked the 2026 Social Security and Medicare employee rates in Publication 15 (2026).
Still open: IRS doesn’t list what counts as reasonable cause in Publication 531.