Employees who receive tips or gratuities are required to report these tips to their employer. The employer includes these tips as income for purposes of calculating and collecting taxes. For those whose income is derived largely from tips, there may be times when the employee's income from hourly wages is less than the amount that needs to be deducted for taxes. This can result in uncollected Medicare taxes.
Identifying Uncollected Medicare Taxes
Examine the W-2 form you received from your employer. Uncollected Medicare taxes will be shown in Box 12 and identified by the code "B." If you gave your employer funds separate from your payroll to cover these taxes, you should request a corrected W-2 from your employer.
Reporting of Uncollected Medicare Taxes
The employee must report these uncollected amounts on her federal income tax return. This amount should be entered on line 60 of Form 1040. Use the code "UT" and enter the total amount of uncollected taxes. You must file a Form 1040 and report these taxes on a Form 1040 even if you would otherwise be entitled to file one of the shorter forms or would not be required to file a return if not for the uncollected taxes.
Uncollected Medicare Taxes for Self-Employed
If you are self-employed but earn tips, the amount of tips received should be reported as income on your Schedule C or Schedule C-EZ. This ensures that Medicare taxes are paid on your earned tips.
- Internal Revenue Service: Publication 531-Main Content
- Internal Revenue Service: General Instructions for Forms W-2 and W-3
- Northshore School District. "2018 Notice to Employee." Accessed Sept. 2, 2020.
- Social Security Administration. "Special Rules for Cash Tips After 1965." Accessed Sept. 1, 2020.
- IRS. "Tip Recordkeeping & Reporting." Accessed Sept. 1, 2020.
- IRS. "Frequently Asked Questions/Tips." Accessed Sept. 1, 2020.
- Social Security Administration. "Contribution And Benefit Base." Accessed Sept. 3, 2020.
- IRS. "Form 4137 Social Security and Medicare Tax on Unreported Tip Income 2019." Page 2. Accessed Sept. 1, 2020.
Jeffrey Joyner has had numerous articles published on the Internet covering a wide range of topics. He studied electrical engineering after a tour of duty in the military, then became a freelance computer programmer for several years before settling on a career as a writer.