Can employers exclude the total amount of tips reported by tipped employees when calculating their FICA taxes?

Employers cannot exclude the total amount of tips reported by tipped employees when calculating their FICA taxes. FICA, which stands for the Federal Insurance Contributions Act, includes Social Security and Medicare taxes that are imposed on earnings. When tipped employees receive tips, these amounts are considered income and must be reported accurately by both the employee and the employer.

The reasoning behind this regulation is that FICA taxes are assessed on all forms of compensation. The income from tips contributes to employees' overall earnings, which is used to determine the amount of FICA taxes owed. By including tips in the calculation, employers ensure compliance with tax laws, which helps maintain the integrity of the Social Security system and ensures that all earnings, including those from tips, are subject to necessary contributions.

In contrast, the other options suggest scenarios where tips could be excluded from FICA calculations, which contradicts the requirement for full reporting of wages and tips for taxation purposes.