Question

Which of the following items is reported to the IRS as employee income?

Select one:
a. operating expenses paid by the salon
b. change given to a client following payment
c. money paid to vendors for products
d. tips received by an employee

Answer 1

Tips received by an employee are reported to the IRS as employee income. Operating expenses, change given to clients, and money paid to vendors are not employee income. Tips, along with wages and salaries, are subject to income tax and payroll tax deductions.

Step-by-step explanation:

The correct answer to the question of which item is reported to the IRS as employee income is d. tips received by an employee. Operating expenses paid by the salon, change given to a client, and money paid to vendors for products do not constitute income for an employee and therefore are not reported as such to the IRS. Instead, tips are considered part of an employee's compensation and are subject to income tax. Employers must ensure that employees' income, which includes wages, salaries, and tips, is correctly reported to the IRS. It is also important to note that deductions from an employee's wages, such as payroll taxes for social security and Medicare, are withheld by the employer and paid to the IRS.

Payroll taxes that employers pay based on employee wages include the employer's contribution to social security and other insurance programs.