Final answer:
Tips are not subject to Social Security and Medicare taxes under specific circumstances, such as if they are non-taxable income.
Step-by-step explanation:
Tips are not subject to Social Security and Medicare taxes under specific circumstances. According to the Internal Revenue Service (IRS), tips are not subject to these taxes if they are considered non-taxable income. Some examples of non-taxable tips include:
- Tips received directly from customers that are less than $20 per month
- Tips received by employees who regularly receive tips as part of their job (such as waitstaff in restaurants) and these tips are properly reported to the employer
- Employee contributions to a tip-sharing arrangement where the employer does not participate
These are just a few examples, and it is important to consult with a tax professional or refer to official IRS guidelines for specific situations.