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I've been helping a friend put together her taxes. Going through her W-2, she noticed that at a restaurant she worked at, the employer has vastly underreported her wages and tips, apparently including in the amount only her base pay and her tips from credit cards.

By the time she left the restaurant, she was getting suspicious that the employer wasn't handling the tips properly; all tips were reported directly to him every night as a pool, and then every 2 weeks he would personally distribute the money as part of wage disbursement.

What should she do? If she submits the W-2 as is, and she's audited, she's worried that she would be liable for the tips that she reported to the employer but were never heard from again.

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Here's a good run-down of what's required to handle the reporting of tip income.

To address this question specifically, here's the relevant instructions from that post:

If your allocated tips are less than what's recorded in your daily log, and you reported your tips to your employer, then it is likely that something is wrong with your employer's recordkeeping system. You can ask your employer to correct your W-2. You should report the allocated tips on Form 4137, plus any additional tips you show in your daily records.

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