Unreported Tip Income - Employers

Generally, when I think about unreported tip income, I think of the employee who doesn't report to their employer the full amount of their tips so that they don't have to pay tax on them. But the truth is that many employers only allow their help to report a set amount or none at all. That way they don't have to pay the FICA on the tips. But employees are required to report tip income on their tax return  that were not reported to their employer. This is done through Form 4137. The tips are added to the taxpayers other income and they paid their share of Social Security and Medicare in the payment section of the 1040. Besides honesty, they are practical reasons to report all your tips such as qualifying for a higher EIC or additional Child Tax Credit or putting more money into your Social Security calculations.

The IRS announced in a recent webinar on tips that they will begin coming after the employer for the matching Social Seciurity and Medicare on tips reported on Form 4137 (the taxpayers have been required to list the employer and their EIN and  the amount of tips they didn't report). The IRS will be using that information to send employers two forms. The first, Form 4520P will give the employer plenty of time to review records and respond if their records don't match. If they can't make the deadline included with the notice, they can request more time.  If the 4520P doesn't solve the problem, a 4520 will be sent demanding payment of the missing FICA taxes. The program should be beginning in the next 6 months and the IRS will have a dedicated phone number for the 4520P notices and a web site to cover the tip program.

Comments

[Anthony Jansen]

TRISH,
Thank you for including me in. I worked for the good old IRS from 1962 thru 1969 when I decided to quit when my eldest brother suggested I might die doing that job that I did not enjoy. (Revenue Officer)
I've been preparing taxes now for 42 years. Only partnership and individual. First year we did 17 tax returns and now doing nearly 2,000.
I enjoy and appreciate you sharing your news and
knowledge with others. William A Jansen, Mark Jansen, Rita L. Jansen, aka Jansens Tax Service.
wajansen@yahoo.com