Social Security Tips on W-2 and Retirement Benefits

[meleana]

So helping my son with his taxes and on his W-2 it shows an amount in the Social Security Tips box (7) which is different (and larger) from the amount in the social security wage box(3). (Both boxes add up to his total Medicare wages as shown in Box 5)



What I am wondering is, does social security use the amount in the SS tips box, along with the amount in the SS wages box, to calculate social security benefits when he retires? I would think they would have to as it is earnings and he pays taxes on those earnings.


(He doesn't have a myss account yet as he is only 36 years old.)



Thanks in advance for your input.

 

[bloom2708]

36 is plenty old enough to create a MySS account. Each year a person should log in and verify the previous year reported wages is correct.

From SSA.gov

Allocated Tip Income

a. General
For social security purposes, allocated tips do not count as wages or income unless the employee reports the allocated tips as additional income to the IRS.

b. Allocated Tip Income
Beginning January 1, 1983, food or beverage establishments with 10 or more employees must allocate tip income if the total amount of tips reported by all tipped employees is less than 8 percent of total sales. The amount allocated is the difference between 8 percent of total sales and the amount of tips reported. Employers are required to report tips allocated to employees on the Form W-2. No taxes are withheld by the employer.

c. Reporting Allocated Tips
Employees must report the allocated tip amount as additional income on the Form 1040 unless the employee has records to show that the allocated tip amount was not received.

If the employee includes allocated tip income on Form 1040, the employee pays their portion of the FICA taxes by completing Form 4137 (Social Security and Medicare Tax on Unreported Tip Income), and filing it with Form 1040. IRS reports the additional income to SSA for crediting to the employee's earnings record.

 

[meleana]

Yes. I told him it’s something he should do.

So then according to what you posted since the SS tips are reported on his W-2 form and entered into the Tax Act program which he filed his taxes through, they should be counted in his wages for SS benefits when he retires?

Am I correct?

 

[bloom2708]

That is my interpretation.

 

[meleana]

I’m confused now as there is no form 4137 attached to the tax act 1040 he submitted. It was never even a question in the program. He just entered the amount in all the boxes from the W-2 form into the program as prompted.

 

[euro]

That is my interpretation.

I/ agree, but the only way to know for sure is to go into mySS every year and check.

 

[meleana]

Thanks. I’ll have to nag him to set it up.

 

[meleana]

Oh, I see. The 4137 form is for the allocated tips box 8 (which he does not have any there on the w-2), not for SS tips. Phew.

 

[all4j]

I’m confused now as there is no form 4137 attached to the tax act 1040 he submitted. It was never even a question in the program. He just entered the amount in all the boxes from the W-2 form into the program as prompted.

With any luck, cathy will weigh in on this as I'm not fully confident in my understanding. I believe the most common case is for Box 3 and Box 7 to add up to Box 1, with Box 7 being the 'reported' tips & Box 3 being perhaps wages earned on a per hour basis. The ss withholding is based on Box 1. You should be able to divide Box 4 by 6.2% to find the base it was calculated on (& reasonably close to Box 1).

Form 4137 is used for allocated tips or 'unreported' tips. If Box 8 is blank and there are no unreported tips, then no form 4137 would be needed. By filing form 4137, those would be added to the social security records as if they had been included in Box 1.

Hope this helps -- &/or gets corrected!

 

[meleana]

With any luck, cathy will weigh in on this as I'm not fully confident in my understanding. I believe the most common case is for Box 3 and Box 7 to add up to Box 1, with Box 7 being the 'reported' tips & Box 3 being perhaps wages earned on a per hour basis. The ss withholding is based on Box 1. You should be able to divide Box 4 by 6.2% to find the base it was calculated on (& reasonably close to Box 1).

Form 4137 is used for allocated tips or 'unreported' tips. If Box 8 is blank and there are no unreported tips, then no form 4137 would be needed. By filing form 4137, those would be added to the social security records as if they had been included in Box 1.

Hope this helps -- &/or gets corrected!

Thanks. Box 3 and 7 on his form actually add up to the Medicare wages in Box 5. His Box 1 wages are around $3000 less than the Medicare wages.


And thanks for the division tip. The result comes out to the Medicare wages in Box 5.

 

[all4j]

Thanks. Box 3 and 7 on his form actually add up to the Medicare wages in Box 5. His Box 1 wages are around $3000 less than the Medicare wages.


And thanks for the division tip. The result comes out to the Medicare wages in Box 5.

Did he perhaps have about $3000 withheld & put into a 401k (box 12 code d)? My 1st thought & an oversight of mine in earlier post.

 

[meleana]

Did he perhaps have about $3000 withheld & put into a 401k (box 12 code d)? My 1st thought & an oversight of mine in earlier post.

Yes! That's right. 12a has a little more than $3000 with code d.

 

[cathy63]

With any luck, cathy will weigh in on this as I'm not fully confident in my understanding. I believe the most common case is for Box 3 and Box 7 to add up to Box 1, with Box 7 being the 'reported' tips & Box 3 being perhaps wages earned on a per hour basis. The ss withholding is based on Box 1. You should be able to divide Box 4 by 6.2% to find the base it was calculated on (& reasonably close to Box 1)...

SS withholding should normally be based on the sum of boxes 3 and 7. Box 4 should be 6.2% of the lesser of Box 3 + Box 7 and $160,200.

Medicare withholding in box 6 should be 1.45% of box 5.

 

[meleana]

SS withholding should normally be based on the sum of boxes 3 and 7. Box 4 should be 6.2% of the lesser of Box 3 + Box 7 and $160,200.

Medicare withholding in box 6 should be 1.45% of box 5.

Yes. That is exactly what it shows.


So then the SS tips plus the SS wages together must both count towards his SS credits for retirement since taxes were taken out of the total amount of both of them.


This just all new to me (and him) in terms of the tips thing so want to make sure we understand it.


Appreciate everyone's help with this!

 

[cathy63]

So then the SS tips plus the SS wages together must both count towards his SS credits for retirement since taxes were taken out of the total amount of both of them.

Yes, that's correct.

One more thing -- if he is single and earned less than $36,500, he's eligible for a retirement saver's credit because of the $3K he put in his 401(k). If that's the case, make sure his return includes form 8880.

 

[meleana]

Thank you again!

No he made a lot more than $36,500 so not eligible for the saver’s credit.