qualified tips on my w2 are in box 14 but TurboTax only accepts box 7 for the no tax on tips deduction

[colin_mccrossin]

box 7 only includes tips I reported to my employer but there were more qualified tips that my employer reported themselves on my pay stub. the qualified total is in 14 and I need to receive a deduction for that total under the no tax on tips law but TurboTax is only giving me the deduction for box 7

[Opus 17]

Box 7 is for tips that were not included in box 1 and need to be assessed extra social security tax.  Box 14 is a general memo field where the employer can put anything you might want to know.

The tip deduction is not being implemented via the W-2 this year, there will be extra steps in the interview.  I don't know if that is ready yet.  If it is, enter your W-2 as-is and then keep going, there might be box to check for "tip deduction" on the page of special circumstances. 

[colin_mccrossin]

Box 7 on my form is correctly not included in 3 but is in 1 and 5.  Do you know for sure if TurboTax is going to add a section to give us an opportunity to enter qualified tips based on our own accounting as the IRS allows in this transition year before the new W-2s come out for 2026?  I finished my W-2 and advanced and currently TurboTax only gives me the deduction for box 7 with no other option to adjust that figure.  Some employees may have to subtract from 7 some may add.  I am already going to my employer to try to get them to issue a W-2c which subtracts the portion of my tips that is in 3 and adds it to 7 so for the purposes of TurboTax the way it is 7 reflects all my qualified tips and I get the full deduction.  

[AmeliesUncle]

---

@colin_mccrossin wrote:
box 7 only includes tips I reported to my employer but there were more qualified tips that my employer reported themselves on my pay stub. 

---

I'm trying to figure that situation out.  Do you have Allocated Tips in Box 8 of your W-2?  If not, I can't think of why the employer would not put all known tips in Box 7.

If there were tips that you did not report to your employer (and therefore not reflected on your W-2 at all), you should fill out Form 4137 as part of your tax return to report those Unreported Tips.

[colin_mccrossin]

My employer followed the guidance for box 7 "tips that the employee reported to you".  the tips they didn't include in 7 but did include in 1, 3, and 5 were tips for me that they collected in their client billing and informed me of not vice versa so that's why they put them were they did.  all of these tips qualify for the deduction but so far anyway the software only accepts 7.  I have advanced past the W-2 section and checked what deductions they gave me.  This will be a big error in a transition year before the new W-2 comes out while employers are not required to account for qualified tips.  My employer did in the 14 notes but I can't get TurboTax to accept that number.  Many employees will want to add or subtract from 7.  

[colin_mccrossin]

Sorry I forgot to answer.  No I have nothing in 8 which is correct since my employer does not allocate.  

[AmeliesUncle]

---

@colin_mccrossin wrote:

tips for me that they collected in their client billing and informed me of not vice versa so that's why they put them were they did.  all of these tips qualify for the deduction but so far anyway the software only accepts 7.  

---

Thank you, that is interesting.  Would you be willing to tell me what kind of work you do and what kind of business your employer does?  I'm trying to visualize the situation better, if you are willing to provide that information.  

While I am not certain, I suspect those tips are still supposed to be in Box 7, even though the W-2 instructions say "employee reported to you [employer]".  But I'll do a bit more research about that.

The problem with your situation is the IRS form mostly just refers to Box 7 and unreported tips on Form 4137, although the Instructions do expand more options (such as Box 14, in your case).  Because it is new, I suspect the initial programming of TurboTax is just looking at the form right now (saying Box 7 or Form 4137), and hasn't been correctly programmed yet for other options.

Unfortunately, unless they are already aware of the problem (which is unlikely), I think the best answer is to Customer Support at TurboTax to inform them of the problem.  Then at whatever point they acknowledge the problem (which may be difficult), it unfortunately usually takes about 2 or 3 weeks for them to do anything about it.  I wish I had better news for you.

[colin_mccrossin]

Yes thank you I need guidance on this.  I am a tour guide at a hotel.  Sometimes clients leave tips in the office on credit cards or paid in advance on their bill.  These were included in 1, 3, 5 not 7.  Tips I received directly from the client are what I reported to the employer and are in 7.  I have asked if my employer can subtract the tips from 3 and add them to 7 such that the software will accept the correct number as it is.  It could have originally all been in 7 but I can understand the employer's reasoning.   The software problem seems more serious.  I can see how it arose based on the new schedule 1-A but during a grace period year in which we are allowed us to do our own reasonable accounting and employers are not required to specifically account for qualified tips it is unrealistic to expect that all qualified tips appear in 7.  If a waiter receives a portion of mandatory service charges which do not qualify but are on 7 he will not be able to decrease the amount on TurboTax as I need to increase mine.  In two days I have talked to four different agents at TurboTax and wrote direct feedback twice apart from this post.  I am glad to hear realistic advice as you seem to be aware of how TurboTax works.  I wish you worked for them and could help fix the issue directly.  If you have any more advice please let me know.  I was thinking if I enter the desired figures in 3 and 7 on the software even though it isn't that way on my W-2 I may not trigger any problem with the IRS because the only numbers that appear on my return are 1 and 2.  I don't know but I guess TurboTax only requests 3 through 7 to verify that Social security and Medicare have been paid.  In that case since 3 and 7 will add to the same amount after I change them perhaps there will be no ramification.  I am halfway expecting since it's not filing time yet TurboTax is already planning to correct the issue within a couple weeks because an error of this magnitude is almost hard to believe.  

[AmeliesUncle]

---

@colin_mccrossin wrote:

Sometimes clients leave tips in the office on credit cards or paid in advance on their bill.

If a waiter receives a portion of mandatory service charges which do not qualify but are on 7 he will not be able to decrease the amount on TurboTax as I need to increase mine. 

---

I understand your employer's confusion, but those credit card tips and advance tips belong in Box 7 of the W-2.  Even though there were charged to a credit card or were advance tips, it is still considered as you receiving the tip and reporting it to your employer.

To keep it simple, I'll cite Publication 15 which says "Report to your employer only cash, check, and debit and credit card tips you receive." and Revenue Ruling 2012-18 (Q&A #2) which says "include tips received from customers, charged tips (e.g., credit and debit card charges) distributed to the employee by his or her employer, ..."

https://www.irs.gov/publications/p531#en_US_2023_publink100022527

https://www.irs.gov/irb/2012-26_IRB#RR-2012-18

Mandatory service charges should not be on Box 7 of the W-2, so there should not be a need to adjust it.  If the W-2 wrongly shows that in Box 7, the employer is doing it incorrectly.

[colin_mccrossin]

That is interesting thank you.  I originally told my employer they should have included all tips in 7 though I didn't literally report all to them they should understand "as if" I had reported because the IRS assumes if the employer reported the tips for tax purposes they were reported by me to the employer.   "Any tips you reported to your employer as required in the tax year are included in the wages shown in box 1 of your Form W-2.  Add to the amount in box 1 only the tips you didn’t report to your employer."  Unreported always means tips not included by employer in the 941 or W2 which haven't been subject to tax yet.  

The error seems to be with me for not reporting in writing before the 10th day of the following month.  The reason the employer has liked to keep a separate accounting is they pay the credit card tips to me on a single paycheck lumped in with wages.  I should provide a report of all tips but they will still still have to separate out which portion they owe me.  I imagine we need to start doing it this way.  

I don't know if there is a tax difference between 7 and 3 but if not I wonder why 7 exists.  As a record of reported tips I suppose but there could be non-cash tips included in 1 not in 7.  

Do we think TurboTax needs to make no correction on this question?  7 and 8 and 4137 (done correctly) will be a sufficient accounting of qualified tips?  of course also with the questions the software does ask about whether the job qualifies, if performed legally, if anyone from the company tipped you.  Perhaps not if only a portion of 7 was received in that portion of ones job description that qualifies as previously being part of a tipping industry.  If a portion of 7 was given by an officer of the company I assume that portion should already not be in 7 as you pointed out mandatory tips should not.  

[AmeliesUncle]

---

@colin_mccrossin wrote:

I don't know if there is a tax difference between 7 and 3 but if not I wonder why 7 exists. 

Do we think TurboTax needs to make no correction on this question?  7 and 8 and 4137 (done correctly) will be a sufficient accounting of qualified tips? 

---

Box 7 is primarily for the employer dealing with Social Security and tax credits.  From an employee point of view, prior to this tip deduction it really didn't affect anything.

While I think that TurboTax SHOULD correct the questions, if everything was reported correctly on the W-2, any changes would be very unusual.  Unfortunately, that may mean it will likely be a very low priority, and may not be changed this year at all.

As for what you should do now, I think I would use the CD/downloaded version of TurboTax.  You can then go into the "Forms" and override that number on Schedule 1-A to correspond with the actual tips that you received.

[colin_mccrossin]

Thanks that's good to know about the forms option on the downloaded version.  I have been using the online, web and app, versions for years.  My employer has now accepted to issue me a W-2c with the numbers TurboTax needs in 3 and 7.  Which option sounds better?  I like the access from mobile phone of the online version and I like that it saves my previous years' data to begin the next year's return or to access a previous return from anywhere.  On the other hand would I worry about having a W-2c that compared to previous years suddenly has a number 5 times larger in box 7?  Of course it would have a lower figure in 3 adding up to about the same as in other years like 1 and 5 since there has been little change in earnings.  I just think I don't want something with big changes year to year and on tips in a year when the tip law changed.  

[AmeliesUncle]

If the employer is willing to amend the W-2, that is the easiest for you.  However, that may get a bit messy for the employer because it also involves the employer form 941.  On the other hand, *IF* your employer qualifies for the Tip Credit, it would increase that (however, they may not qualify; I know it pertains to food service, but unsure about other services; I would need to research that).

Overriding the number on TurboTax may be easier overall; however, it could possibly trigger the IRS to question by it is different than Box 7, causing delays to your tax return processing and/or hypothetically even the IRS questioning your employer about the difference.  With that being said, I suspect they are going to let most oddities this year just 'slide', and potentially not question things until the 2026 tax returns.

I really, really doubt if a large change to Box 7 from one year to the next will trigger any IRS scrutiny, especially for this year.  In reality, I suspect that many restaurants and other businesses will be changing from a auto-gratuity/service-fee to regular tips, which should be dramatically changing Box 7 for many people.

[colin_mccrossin]

Or, a third option with no W-2c and I continue with the online version I enter the corrected figures for 3 and 7 not what's on the W-2.  I feel like TurboTax only uses these numbers internally to make sure I am paid up on my social security tax whereas the only thing to come out of the software to the IRS are 1 and 2, unchanged from my W-2.  

[AmeliesUncle]

I agree that would definitely be the easiest overall.

However, personally, I would be hesitant about just changing Box 7 on your tax return.  While it results in the correct tax return, the IRS computers may trigger because it sees that your entries are different than the actual W-2 that they have on file.  I DON'T know if it would cause an IRS trigger, but it might.  On the other hand, even if it trigger the IRS computer, the tax return result is the same (except for documentation for the tip deduction), so it shouldn't really matter.