HOW TO REPORT QUALIFIED TIPS ON THE W2 WORKSHEET TO FLOW TO SCH 1-A

[ATBLLC]

I have a client that on their W2 shows their qualified tips reported in box 14 (also included in box 1). However, box 7 and 8 are blank. How can you properly fill out part III to include the deduction of the qualified tips to flow to schedule 1-A and NOT trigger FICA/Med tax on Sch 2? These are reported tips and not unreported. 

Thoughts?

[Just-Lisa-Now-]

Have you scrolled down the W2 worksheet to Part III to the Tips section and input the type of profession?

Wait, I misread.....tips are subject to SS./Medicare its only the federal taxes that are a freebie....if no tips are reported in Box 7 and no SS/Medicare has been paid on them, you wont get a deduction.

To get the tips deduction, youd need to pay the FICA on them with Form 4137, Part III lets you do those entries as well.

[ATBLLC]

They did pay FICA and Medicare. The employer included them in box 1 of the W2, but noted it in box 14 (qualified tips included in box 1).

These are qualified tips that FICA/Med have been paid via payroll. I'm only trying to deduct the qualifed tips to flow to 1-A to the 1040.

[Just-Lisa-Now-]

Box 1 isnt necessarily subject to FICA.  If youve seen the final checkstub and youre sure its been included in Box 3, the W2 was prepared incorrectly, you may need to breakout the tips portion from Box 3 to Box 7.  Not really our job, but Im sure everyone will be given lots of leeway this first year.

[Terry53029]

Here is a sample of what a typical waitstaff employee should receive. You need to scroll down the W2 worksheet (almost to bottom) to enter tips so it flowes to schedule 1a.

Sample W-2 Form (Tipped Employee)

• Box 1 (Wages, tips, other compensation): $30,000.00 (Total of $10k wages + $20k tips)
• Box 2 (Federal income tax withheld): Amount withheld
• Box 3 (Social security wages): $30,000.00
• Box 4 (Social security tax withheld): Amount withheld
• Box 5 (Medicare wages and tips): $30,000.00
• Box 6 (Medicare tax withheld): Amount withheld
• Box 7 (Social security tips): $20,000.00 (The amount of tips reported to the employer)
• Box 8 (Allocated tips): Blank (Unless the employer was required to allocate tips)
• Box 12 (Codes): May show uncollected Social Security or Medicare taxes (Codes A/B) 

[Just-Lisa-Now-]

Terry, so how does it work with Box 7 empty and Qual Tips in Box 14 only?

[Terry53029]

Sounds like an incorrect W2. In the past I had several clients that were waitstaff employees, and box 7 was never empty. Maybe the employer was just trying to make sure the employee was not going to be taxed on tips. I would see if I could talk to the employer to see why he filled it out that way, and ask if he could give a corrected W2, and give him the link to IRS on correct W2 instructions. If he refused I would just use the amount he put in box 14 for tips, and file the return.

[IRonMaN]

I wouldn't just run with box 14.  Who knows, maybe the employer completely left tips off the W-2 but heard something about tips not being taxable so he put an amount for tips in box 14 which would mean deducting something that wasn't taxable to begin with.

[Terry53029]

@IRonMaN That is why I would call the employer to see what he was doing

[ATBLLC]

Just to give everyone a few more facts. I was given the last pay stub that reconciles with the W2. Boxes 1, 3 and 5 are all the same. Box 14 has is stated the qualified tips that is included in box 1. FICA and medicate taxes have been taken out correctly which ties out to box 4 and 10.  The last paystub shows the qualified tips that matches to box 14. I do have a supplement letter accompying the W2 from the payroll company (employer) that indicates that changes to the W2 are not required for 2025 but will be modified for 2026. The last paragraph of the supplemental letter with the W2 states, "see your tax professional" for further gudiance.  The facts that I have is that the "tips" stated were included in wages and taxed. Getting these to properly show on the A-1 will be somewhat difficult. I appreciate all of the respones.

[IRonMaN]

I haven't looked at the software yet, but since there were no employer reporting requirements for 2025, and you know what the tips are and they are included in gross income, why can't you just report the tips as deductible and run with it?

[ATBLLC]

That's exactly what I plan to do. The issue is the software. If I add it directly on Part III I can't get it to flow to 1-A by entering on line 5 or 6. If you enter it on line 5, then it will add the tip income to the 1040, which is just the opposite I'm trying to do. I've found one solution, it's not exactly correct, but to get the software to cooperate, I've slected the "RRTA tips" under the drop down on box 14, which then forces to put the amount on line 1 under Part III, then everything flows correctly.

[IRonMaN]

Sometimes the skill needed to operate Intuit products is to figure out how to work around the software to get a correct answer.  If everything flows correctly on the return after you do that, go for it.

[HOPE2]

I think you did great, GREAT JOB!

[Tax man]

that what I did too I put RRTA TIPS for tips and it work but my customer got a letter IRS saying 

to send support documents for the tips of line 13b from 1040 and schedule A-1

how to enter the tips for restaurants, casino, hotel since it is not RRTA the correct way?

[ATBLLC]

Since my original post, the BOX 14 entry for tips has been corrected. Everything is flowing as it should to Sch 1-A. No need to do the RRTA now.

[skelly11]

If the tips are already part of box 1, break them out in box 14 so it does not double count them- put "tips" as the description and choose" Reported tips" as the category- it will then flow through and only count the income once