Statistically speaking, the main party missing out on its cut when you tip in cash is the IRS. Not really an ethical concern for most of us, but for those who do feel bad about this, you could just overpay your taxes every year by say 10% of what you estimate you tipped in cash.
It is the obligation of the tipped employee to report their tips as income and pay taxes on them. True, it's difficult to audit so sometimes they don't, but that's hardly my problem.
The notion that you should overpay your own taxes to solve this is just bewildering.
The worker is supposed to report all cash tips. Since most of these workers probably pay little to no taxes, it really doesn’t harm the treasury, even if they fail to report.
Recipients of cash tips must report the income to the IRS for taxation purposes. The fact that many people choose to refuse to disclose their cash tip earnings doesn't mean that I should bulk up my taxes to make up for their fraud.
Companies must now report credit card transactions to the IRS. It's possible for them to see % of cash vs credit and the amount topped in credit. It would not be hard for them to audit you, the worker, if you report lower cash tips than the average than your boss reports in his business.
