It is important to report all income, including cash tips, because?

• A. You will pay fewer taxes.
• B. You will increase the amount of Social Security benefits you'll receive after retirement.
• C. It has no effect on benefits.
• D. It is illegal to report cash tips.

Answer: (B)

Social Security benefits are based on your lifetime earnings as recorded by the SSA and IRS. Cash tips count as income and must be reported so they are included in your earnings history. When tips are reported, those earnings are used to calculate your benefit, and the higher your accurately reported earnings, the higher your retirement benefit can be. If tips aren’t reported, your earnings record is understated, which can lower the Social Security benefits you receive later. So reporting all income, including tips, helps ensure you get the retirement benefits you’re entitled to. It isn’t about paying fewer taxes—reporting tips increases taxable income now, and it’s illegal to fail to report tips.