Have Tax Questions? Ask a Tax Expert for Answers ASAP
You don't need to change "allocated tips" section. Did you report tips to the employer? Do you have a log of tips that you actually received?
What do you mean under 'tipped out to my fellow co-workers"? Did you voluntary shared tips or there are some rules regarding sharing tips?
It is still not clear if tip income is included in the box 1 or 8 on W2 form.
Your employee may report allocated tips on W2 in box 8. However this is not an amount you should report as your income. You should have a daily tip income log - see examples here - http://www.irs.gov/pub/irs-pdf/p1244.pdf that includes tips paid out.
In general tips that were paid out should be reported to your employer using form 4070
You will report to IRS tips that were not reported on form 4137 http://www.irs.gov/pub/irs-pdf/f4137.pdf. Only actual tip amount you receive should be reported. A daily tip income log will be your supporting document.
Your employer should not include in the W2 box 1 tips that were not reported. Those that were reported shall be included.
You may also see IRS publication 531 - http://www.irs.gov/pub/irs-pdf/p531.pdf
You is not responsible to pay taxes for income you didn't received, however you are responsible to report tip income to employer using the form 4070 - see lellow
In this form you may include amount you tipped out. If you didn't report this, your employer doesn't have any information about amount you tiped out and sent information on w2 to you and to IRS based on information it had.
Try to report it now even it seems too late. Attached a letter with full description and amounts you received and tipped out. Be sure you have all supporting documents as daily tips log - see below
If this doesn't work make a copy of daily log, write the explanation letter to IRS and attach to your return. State in the letter that tipping out is the usual way of doing the business in the company you work for and that the company didn't instruct you how to report tipped out amounts and refused to correct W2. Your return with all papers should me mailed to IRS.