Stephen Sprunk wrote:

In the US, I rarely hear of restaurants not passing on tips to waiters,
but they _do_ have to take out taxes and report that income to the
gov't, whereas it's up to the waiter to report cash tips--and most
don't. This can add up to a significant difference in income for a
waiter, especially given all the special tax credits and such they can
qualify for by not reporting most of their income.

That law changed a long time ago. The employee reports both cash and
credit tips, not just cash, to his employer.

The reporting threshold, employee to employer, is $20 per month.
The employee is required to keep a daily log of tips and split tips,
reporting tips both received and paid out to the employer. The employee
aggregates cash and credit tips separately. Of course the employer knows
tips from credit slips, and would check to see if there is an inexplicable
difference in the cash tipping rate. IRS checks this, too.

The employee's daily log is his proof.

The employer assumes a tipping rate at 8% (or possibly a lower amount
if it enters into an agreement with IRS) and allocates that amount among
the waiters, and compares what they've reported monthly as their net
tips. If the employee has reported significantly less than the allocated
amount, he'd damn well better be able to back it up.

Payroll taxes are withheld at the usual rates on both wages and tips.
A waiter with very good tips may have to pay estimated taxes.