If it's on a cc, it will be reported. The sweet spot is the cash tip above the minimum required reported amount, which winds up in the waiter's pocket. Yes, that tends to even out over the night which winds up meaning the cash tip isn't reported. Most ethical waiters will pass some of that along to the tipped out employees for helping get the higher tip, but that's solely at the waiter's discretion.

By the numbers: A waiter sells $1k during the night. The IRS wants to see a percentage of that reported as tips, so let's say $130. For now, let's ignore the tip out to other employees and just assume the waiter takes it all. This won't change the numbers here, just who pays the taxes. Let's further say the waiter sold $800 in ccs, the rest in cash, with cc tips totaling $150. In some restaurants, the cc tips will be high enough that the waiter will not have to report cash. In others, the concern is no reported cash tips will trigger the IRS to look more carefully, so the waiter will report all the cc tips and a percentage of the cash sales, let's say 10%, for a total of $170 reported. So long as the minimum is met on ccs, a cash tip on a cc sale gives the waiter more money, because the tip can go unreported. The waiter still tips out, but if the restaurant meets the minimum required reporting percent on ccs already, the cash tip goes unreported. A cash tip amount above the minimum required amount will always go unreported, too, although again, the waiter will still tip out on that.

I realize this has gone way off topic, but I'm happy to answer any additional questions. I didn't realize people don't know how tipping works or is taxed, but if you haven't worked in the industry, how would you know? I'm this lost in so many foreign countries because they are different that our system, so it makes sense that this is confusing. Years ago, my niece was upset with me for not leaving a waiter tip in Paris. She couldn't get over that waiters there are paid a real wage and even asked the waiter, with whom she had hit it off, if it was true he wasn't tipped.