Must employers collect FICA taxes on tips reported by employees?

Employers are indeed required to collect FICA taxes on tips reported by employees. This is because FICA (Federal Insurance Contributions Act) encompasses both Social Security tax and Medicare tax, which apply to various forms of employee compensation, including tips. The IRS mandates that any tips received by employees must be reported if they exceed a specific threshold, which is $20 in a month.

When an employee reports these tips, the employer has the obligation to withhold the appropriate amounts for FICA taxes just as they would for regular wages. This ensures that the contributions to Social Security and Medicare are accurate and consistent for all forms of compensation provided to employees.

In summary, since FICA taxes are required on reported tips, employers must take the necessary steps to collect these taxes from employees, regardless of employment status. This approach helps maintain the integrity of the Social Security system by ensuring all earned income is accounted for in tax calculations.