Employment Law Questions? Ask an Employment Lawyer.
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The short answer is that it is not illegal as long as you are being paid according to state and federal minimum wage standards. Since the employee receives at least minimum wage from the employer federal and state law allows the employer to distribute or retain the tips as they desire, including retaining them for themselves.
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Basically, what is happening is that the employer is electing to take a "tip credit" as punishment, but not outright calling it a punishment and he/she is legally entitled to do so under federal law because they are paying you over minimum wage (so the tip credit is the difference between the amount you are getting paid and the federal minimum standard for tipped employees).
Ok, that specifically (in the way you described) is illegal.
You should speak to an employment law attorney in the area. Have him write her a demand letter to see if she responds to that. If she does not, you may have to move forward with litigation (a lawsuit).