True or False: Taxpayers are exempt from paying Social Security and Medicare taxes on unreported tips.

Taxpayers are required to pay Social Security and Medicare taxes on all of their income, which includes tips received, regardless of whether those tips are reported. This obligation exists because the IRS considers tips as part of taxable income, and failing to report them does not eliminate the tax liability. Thus, even if tips go unreported, the taxpayer is still responsible for paying these taxes.

The total amount of tips, whether reported or not, contributes to the individual's overall income, and the tax on that income remains due. Therefore, the statement that they do not owe any taxes on unreported tips is false, making the correct response accurate.