ITG FAQ #11 Answer-What is the proper way to report tips on an employee's Form W-2?
Tips reported to you by the employees or as part of a tip agreement (TRDA or GITCA) are included in box 1, Wages, tips and other compensation, of Form W-2. If you own a large food or beverage establishment, you must report allocated tips under certain circumstances. Allocated tips are reported in box 8 of Form W-2. Do not include allocated tips in boxes 1, 3, 5 or 7 of the Form W-2. Do not withhold income, social security, or Medicare taxes on allocated tips.