What Is Social Security Tax Withheld on Tips & Should I Include it in My Total Wages Withheld?

by Tara Thomas ; Updated March 15, 2018

If you’re in an industry where you are customarily tipped for your services, you are already probably familiar with how it works. You faithfully report your tips to your employer, and trust that the appropriate taxes are being withheld. While this is true in most cases, it is always a good idea to understand exactly what the tax implications are of being a tipped employee. Fortunately, a quick search of the IRS' website will turn up interactive tax assistant tools, publications and the most recent information for filing taxes on tips.

How Are Tips Taxed?

The IRS considers any tips you receive to be part of your wages or income. This means that you are required to not only report tips totaling $20 or more per month to your employer, you may also have to pay taxes on this income. Your employer will deduct federal income, state and local tax as well as Medicare and Social Security taxes from your income. Because you include your tips along with your standard pay, the process of filing taxes on your tips is no different than it is for someone filing taxes on any other source of income. Each year, the IRS releases income minimums that must be reached before you are required to file taxes. When your income reaches this threshold, depending upon your age and filing status, you must file a tax return for the year.

Understanding FICA Tax

Social Security and Medicare contributions are collectively known as FICA, or Federal Insurance Contributions Act taxes, and are mandatory payroll deductions that both employees and employers must pay. Social Security accounts for 6.2 percent of this tax, and the Medicare contribution is 1.45 percent. Because employers and employees are responsible for making these contributions, the total amount of FICA taxes collected are 15.3 percent.

However, there is a threshold on the amount of your income that is subject to Social Security tax. For tax year 2017, this amount is $127,200, up 7 percent from the 2016 threshold amount of $118,500. There is, however, no limitation on the amount of your income that is subject to the other component of FICA tax – Medicare. There is also a lesser known aspect of FICA taxes that are imposed on wages in excess of $125,000 for married filing separately status, and $250,000 for taxpayers who are married filing jointly. This 0.9 percent Medicare surtax, also known as the Additional Medicare Tax, went into effect on January 1, 2013, as a provision of the Affordable Care Act.

Reporting  Tip Income

When you file taxes on your wages, including your allocated tips, you have to complete IRS Form 1040, "U.S. Individual Income Tax Return." To your 1040, you also need to attach IRS Form 4137, "Social Security and Medicare Tax on Unreported Tip Income." Use Form 4137 to report tips allocated to you by your employer, based on the amount in Box 8 of your Form W-2, "Wage and Tax Statement," that employers are required to send out to employees by January 31 of the new year.

Because Social Security taxes, along with Medicare contributions, are mandatory payroll taxes, the IRS does not allow you to deduct these on your tax return. You can include federal income taxes that you have paid in the year, in hopes of a refund, but Social Security and Medicare taxes cannot be deducted.

Video of the Day

Brought to you by


About the Author

Tara Thomas has been a writer and traveler since 1997. Her articles appear in various online publications. She also has experience authoring grant proposals for a Southern California marine science laboratory, which helped her develop a lifelong interest in environmentalism. Thomas is an event planner, has a Bachelor of Science in marine biology from California State University, Long Beach, and worked as a mortgage consultant since 1998.

Photo Credits

  • Comstock Images/Stockbyte/Getty Images
Cite this Article | raiffeisen-cards.ru A tool to create a citation to reference this article Cite this Article

Related pages

incorrect tax return penaltiesmedicare offices sydney locationscalculate total assetswi unemployment calculatorwhat is an intermediate term bondis money received as a gift taxablewww.gap.com gapcard paymentstatute of limitations ny debthow to get a car loan with no cosignerwhere can i buy prepaid credit cardmedicare lift chair reimbursement formvanilla mastercard electronic use onlytax on bonuses calculatordebit card refund cash800-304-3107hess gas cardsquick deed houseleast expensive cars to insureinnocent spouse vs injured spousevanilla prepaid card activationtax preparer practice testnys tax id numbercibc credit card rewardsdepositing coins at banktn food stamps schedulewhat percentage of paycheck is taxestenants in common rights of survivorshiphow to calculate annual dividend per sharewhen do personal checks expireexamples of angel investors2500 credit card limit bad creditinsuring a learner driveriowa state refund statusdo speeding tickets increase insuranceconservatorship versus guardianshipaccounting entry for prepaid expensesmedicaid income eligibility floridaintangible tax in floridabluecross bluesheild of texaswhat does pps stand for in accountingwhat is pinless debitborrowing friends car insurancewhat are exemptions on w2flexible budget formula exampleat t stock ticker symbolorchard credit cards for bad creditcibc credit card rewardsuniversal studios orlando diningnorth carolina state income tax refundformula for contribution margin per unitsoffit venting requirementsemployer t4belk department store credit cardmeaning of proratedfafsa savings account limitinterspousal deed californiacancel gold's gym membership onlinewhen must w2 be mailedairline ticket credit cardillinois state payroll taxdifference between transunion and equifaxcalculate savings bond worthsocial security form 521gwinnett county tax assessor property search by namegold flakes valuedifference between mutual fund and brokerage accountaarp prescription drug plansovereign bank checking accountstatute of limitations for shopliftingbabysitting tax deductioncashing a tax refund check