What can be said about cash tips under FICA?

What can be said about cash tips under FICA?

• A. All cash tips must be reported
• B. Only large cash tips are taxable
• C. Cash tips less than $100 are exempt
• D. Only cash tips over $200 are taxed

Answer: (C)

The correct understanding of cash tips under FICA (Federal Insurance Contributions Act) revolves around the requirement for reporting various amounts. In particular, cash tips must be reported if they meet a certain threshold. When it comes to cash tips, the IRS requires that any gratuity amount of $20 or more received in a single month from customers must be reported by the employee receiving those tips. Therefore, any cash tips that are less than $20 in a month do not need to be reported for FICA purposes. This is significant because it establishes a minimum threshold below which cash tips are exempt from reporting, contrary to the notion that all cash tips or only larger ones are taxable or reportable. Understanding this context helps clarify the nuances of cash tips and their interaction with FICA requirements, emphasizing that not all cash tips are treated the same and that smaller amounts can go unreported.

The correct understanding of cash tips under FICA (Federal Insurance Contributions Act) revolves around the requirement for reporting various amounts. In particular, cash tips must be reported if they meet a certain threshold.

When it comes to cash tips, the IRS requires that any gratuity amount of $20 or more received in a single month from customers must be reported by the employee receiving those tips. Therefore, any cash tips that are less than $20 in a month do not need to be reported for FICA purposes. This is significant because it establishes a minimum threshold below which cash tips are exempt from reporting, contrary to the notion that all cash tips or only larger ones are taxable or reportable.

Understanding this context helps clarify the nuances of cash tips and their interaction with FICA requirements, emphasizing that not all cash tips are treated the same and that smaller amounts can go unreported.