Comprehensive and Detailed Explanation:
Employers must allocate tips if the total reported tips are less than 8% of gross receipts for establishments where tipping is customary.
Allocated tips are reported on Form W-2, Box 8 (Option C) but are NOT subject to withholding.
Option A is incorrect because allocated tips are not subject to automatic withholding unless voluntarily reported by the employee.
Option B is incorrect because employers are responsible for accurate tip reporting.
Option D is incorrect because tip allocation rules require reporting when applicable.
Reference:
IRS Publication 531 - Reporting Tip Income
Payroll.org - Employer Tip Allocation Rules