In many restaurants, at the end of the shift the waiter is told, "You sold X, tonight's tip out is for four employees so it's 25% so you owe Y." Nowadays that's often just taken out of the cc tips if those are paid out weekly or biweekly. Leaving it up to the individual server to decide based on self reporting tips leaves too many open questions for those receiving the tip out. While I worked with many honest people, there were some who would have likely shortchanged the tipped out employee. Basing tip out on sales gets rid of that and, again, allows for accurate reporting to the IRS. Sometimes when a back waiter or bus boy goes above and beyond and the waiter will tip out more. That would be given directly to the employee, but the minimum tip out is usually based on sales, not self reporting or totaling of tips received.

So yes, the waiter pays tax and tip out from his own funds if you leave nothing. I've done it once that I can remember when the service was horrible and I had chewed out the waitress when chimed in, "but the service was good, right?" Otherwise, when I'm pissed with the service, which has only been a couple other times in 30+ years, I leave 8%. The sweet spot is over 15% in cash which means the waiter walks with the extra money in pocket. For non-business, my standard is 20% +$1 all tipped in cash. For biz it's on my Amex.

A couple additional things: In the example above I oversimplified. The amount the waiter is taxes should be after the tip out amount is taken away. Tipped out employees pay tax on that. But it does't include the cc charge pass through. If the restaurant pays 1.5% to accept a certain cc, that amount will be deducted from any tips on that card so it doesn't cost the restaurant money. The restaurant pays its share on the food sales, but not on the tip in many restaurants.