Workers are required to pay taxes on tips, but employers are only required to report cash tips at something like 9% of sales. This means that when workers were mainly tipped in cash, they could hide a fair amount of their tip income if they were averaging more than 9% tips -- though they were legally required to report it, not reporting it was essentially risk-free. I assume that charged tips are reported by their actual amount.

In New York hospitality employers can take a tip credit reduction to the legal minimum wage. Effectively paying 10.65 as wage provided the employee earns effectively more than the 15 minimum wage with tips included.

Employees pay income taxes on reported tips. When tips are paid in cash, employers sometimes require employees to turn in these tips for distribution on their paychecks. Tips are of course paid via paychecks when tips are paid by credit card.

Finally, employers can claim a business income credit for the taxes paid on employee tips.

(I work in hospitality services)

https://dol.ny.gov/minimum-wage-tipped-workers

https://www.irs.gov/businesses/small-businesses-self-employe...

Yes, you do. Which is why wait staff prefer it when you tip in cash. That makes it a lot easier to hide.

Though that doesn't always work. A lot of places pool tips. Everybody puts their tips together and it's distributed as part of your paycheck -- and the IRS knows about it.

Yes, workers are required to pay taxes on that income. Whether they do or not is another question. When tips used to be mostly cash, workers would often just pocket the cash. The government can't tax what they don't know about. More often, though, tipped workers often work at the lowest income scales and thus fall within income brackets that require little taxation.