Tax Preparer Practice Exam – Practice Test, Prep & Study Guide

Form 4137 is specifically designated for reporting unreported tips received by employees. It is necessary to use this form in situations where tips have not been properly reported to the employer, thereby leading to an understatement of taxable income.

The purpose of Form 4137 is to ensure that individuals report the correct amount of income they have received from tips, particularly when those tips were not included on their regular income statements provided to their employer. The form helps to correctly calculate the tax obligations owed on those tips.

When tips are correctly reported to the employer, or if allocated tips are being covered, the requirements to fill out Form 4137 do not apply, since those situations do not involve any unreported income requiring correction. Furthermore, the $20 threshold mentioned in one of the choices pertains to the requirement for employers to report tips; it does not limit the need for an employee to report unreported tips if they exceed this amount. Thus, the necessity of completing Form 4137 directly ties to the failure to report tips to the employer as required.