8 — Allocated Tips Updated for tax year 2025

What this line means

Tips your employer allocated to you because the total tips reported by all employees at your establishment fell below 8% of gross receipts. Allocated tips are not included in Box 1 — they are a separate amount the IRS uses to flag potential underreporting. If you already reported all your actual tips, you may not owe tax on the allocated amount, but you need to account for it on your return.

Does this apply to you?

• You work at a restaurant, bar, or other food and beverage establishment with more than 10 employees
• Your employer determined that total reported tips fell below 8% of the establishment’s gross receipts
• You see an amount in Box 8 and need to decide whether to include it as income on your return

Easy to overlook

Allocated tips are not in Box 1 Unlike Box 7 (Social Security tips), allocated tips in Box 8 are not included in your Box 1 wages. If you actually earned these tips and did not report them, you must add them to your income on Form 1040. If you kept a daily tip log proving you earned less than the allocated amount, you do not have to report the allocation — but you need that documentation. ¹ [SOURCE: IRS Publication 531 — Reporting Tip Income]

Allocated tips trigger Form 4137 If you include allocated tips in your income, you must also file Form 4137 to pay Social Security and Medicare tax on them. Your employer did not withhold FICA on allocated tips because they were not reported through payroll. The tax is calculated on Form 4137 and added to your 1040. ² [SOURCE: IRS Tip Rate Determination and Education Program]

Watch out for this

Ignoring Box 8 entirely. Filers see that allocated tips are not in Box 1 and assume they can skip them. The IRS knows about the allocation and expects you to either report the amount as income or have a tip log demonstrating you earned less. Simply ignoring Box 8 with no documentation is a common audit trigger in tip-heavy industries.

Related lines on your return

• Box 7 — Form W-2 — Tips you actually reported to your employer; already included in Box 1
• Box 1 — Form W-2 — Total wages; does not include allocated tips from Box 8
• Form 4137 — Social Security and Medicare Tax on Unreported Tip Income — Required if you report allocated tips as income