What this line means
Unreported tip income that is subject to Social Security tax, from Form 4137, line 10. If you received cash tips that you did not report to your employer, Form 4137 calculates the Social Security and Medicare tax on those tips. The amount from Form 4137 goes here so the SE calculation knows how much additional wages have consumed the Social Security wage base.
Does this apply to you?
- You worked in a tipped occupation (restaurant, hotel, salon) and received cash tips not reported to your employer
- You filed Form 4137 to calculate Social Security and Medicare tax on unreported tips
- You received tips totaling $20 or more in a month that you did not report to your employer
Easy to overlook
Unreported tips count toward the Social Security wage base Tips you did not report to your employer still consume part of the Social Security wage base, just like reported wages. If you leave line 5b blank when you have a Form 4137 amount, the SE calculation does not account for those tips, and you pay Social Security tax on SE earnings that should have been shielded by the already-consumed ceiling. 1 IRS Schedule SE instructions — Line 5b
Form 4137 must be filed before entering an amount here Line 5b is not for estimating unreported tips. It requires the specific amount from Form 4137, line 10. If you have unreported tips but have not completed Form 4137, you cannot enter a number on line 5b. Complete Form 4137 first, then carry the result here. 2 IRS Form 4137 instructions — Social Security and Medicare Tax on Unreported Tip Income
Watch out for this
Confusing unreported tips with allocated tips shown in W-2 Box 8. Allocated tips are tips your employer assigned to you based on a formula when your reported tips fell below a minimum percentage of sales. Allocated tips are not the same as unreported tips from Form 4137. If you have allocated tips and agree with the amount, you report them as income but handle them differently than Form 4137 unreported tips.
Footnotes
-
IRS Schedule SE (Form 1040) Instructions, Line 5b. https://www.irs.gov/instructions/i1040sse ↩
-
IRS Form 4137 Instructions, Social Security and Medicare Tax on Unreported Tip Income. https://www.irs.gov/instructions/i4137 ↩