Under FICA, are cash tips of more than $100 in a month considered taxable wages?

Under FICA, are cash tips of more than $100 in a month considered taxable wages?

• A. Yes, they are
• B. No, they are not
• C. Only if reported by the employer
• D. Only for tipped employees

Answer: (B)

Under the Federal Insurance Contributions Act (FICA), cash tips exceeding $100 in a month are indeed considered taxable wages. If a tipped employee receives cash tips that cumulatively surpass this threshold within a month, those earnings are subject to Social Security and Medicare taxes. Moreover, it is essential for the employee to report these tips to the employer, which is typically done through a monthly report. Choosing an answer that suggests cash tips are not taxable fails to recognize the requirement outlined by the IRS regarding the taxation of tips for FICA purposes. Cash tips are an integral part of a worker's overall earnings, and the IRS mandates their inclusion in taxable wages to ensure that all forms of compensation are appropriately contributing to Social Security and Medicare funding. Understanding the implications of cash tips is crucial, particularly for employees in industries where tipping is common, as it impacts both the employees' tax obligations and the benefits they receive from Social Security and Medicare in the future.

Under the Federal Insurance Contributions Act (FICA), cash tips exceeding $100 in a month are indeed considered taxable wages. If a tipped employee receives cash tips that cumulatively surpass this threshold within a month, those earnings are subject to Social Security and Medicare taxes. Moreover, it is essential for the employee to report these tips to the employer, which is typically done through a monthly report.

Choosing an answer that suggests cash tips are not taxable fails to recognize the requirement outlined by the IRS regarding the taxation of tips for FICA purposes. Cash tips are an integral part of a worker's overall earnings, and the IRS mandates their inclusion in taxable wages to ensure that all forms of compensation are appropriately contributing to Social Security and Medicare funding.

Understanding the implications of cash tips is crucial, particularly for employees in industries where tipping is common, as it impacts both the employees' tax obligations and the benefits they receive from Social Security and Medicare in the future.