What is the penalty for failing to report tip income above the required limit?

When an individual fails to report tip income that exceeds the required limit, they are technically subject to penalties related to tax compliance. The obligation to report all income, including tips, ensures that the proper amount of tax is paid. The correct response highlights two key elements: the necessity of paying taxes on the unreported income and the accumulation of interest on these unpaid taxes.

The tax system operates on a principle of voluntary compliance, meaning taxpayers are expected to report all income accurately. When there is a failure to do so, the individual must pay taxes on the unreported amounts to fulfill their responsibilities under tax law. Additionally, because taxes are due on unreported income, interest may accrue on the unpaid amount, further increasing financial liability.

The other options do not accurately describe the consequences of failing to report tip income. For instance, stating that no penalty is imposed contradicts the core requirement of tax reporting. Furthermore, the notion of a fine based on unreported tips may not encompass the full scope of tax obligations. Lastly, the idea of being banned from receiving tips does not align with tax regulations, which focus more on reporting income rather than regulating one's ability to earn tips.