What this line means
The total amount of tips you reported to your employer during the year. Your employer uses this amount to withhold income tax, Social Security tax, and Medicare tax from your paycheck. This number appears in Box 7 of your W-2. Subtract this from line 1 to determine how much tip income went unreported.
Does this apply to you?
- You reported tips to your employer using Form 4070 or a similar written statement
- You received a W-2 showing an amount in Box 7 (Social Security tips)
- You reported tips through your employer’s electronic tip reporting system
- You worked at a large food or beverage establishment that allocated tips to you
Easy to overlook
Allocated tips shown in W-2 Box 8 are not the same as reported tips If your employer allocated tips to you (Box 8 on your W-2), those are tips the employer estimated you received but that you did not report. Allocated tips do not go on line 2 — they belong on line 1 as part of your total tips received. Confusing Box 7 (reported) with Box 8 (allocated) understates your unreported amount. 1 IRS Publication 531 — Reporting Tip Income
Monthly tip reports must cover every month you earned tips The IRS requires you to report tips to your employer by the 10th of the following month using Form 4070 or an equivalent statement. A gap in monthly reporting does not mean those months had zero tips — it means you have unreported income for those months. Missing even one month creates a discrepancy. 2 IRS Form 4070 instructions — Employee’s Report of Tips to Employer
Watch out for this
Using the total from Box 1 of your W-2 instead of Box 7. Box 1 includes wages plus reported tips plus allocated tips, while Box 7 shows only the tips you actually reported to your employer. Line 2 needs the Box 7 amount. Using Box 1 inflates line 2 and makes your unreported tip amount appear smaller than it is.
Footnotes
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IRS Publication 531, Reporting Tip Income, Allocated Tips. https://www.irs.gov/pub/irs-pdf/p531.pdf ↩
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IRS Form 4070, Employee’s Report of Tips to Employer. https://www.irs.gov/pub/irs-pdf/f4070.pdf ↩