When must employees report their tips to their employer?

The correct answer is that employees must report their tips to their employer when their tips total $20 or more per month. This requirement is set by the Internal Revenue Service (IRS) and is part of the guidelines to ensure appropriate tax reporting and compliance.

Employees who work in jobs where tipping is customary, such as in restaurants or hospitality, are responsible for tracking and reporting their tips to their employer as part of their taxable income. The threshold of $20 is significant because it minimizes the administrative burden on both employees and employers, allowing for clearer compliance with tax laws while ensuring that substantial income is reported.

In contrast to the other options, reporting tips when they reach $20 a month strikes a balance between allowing casual and low-frequency tip earners to not be overburdened with reporting duties, while still capturing significant tip income that could otherwise go unreported. This ensures that employees contribute their fair share towards taxes based on their actual income from tips received.