The IRS regularly busted people for this when I waited tables back in the 90s, so I can't imagine that it got harder for them to do so now with more advanced technology.
TIL. They are tax excempt where I live. However it looks like in that case it's even less of an issue because seems like the employer is required to report this for calculating medicare contributions anyways if I understand this correctly.
If you live in the USA, then they are not tax exempt. They may be exempt from state income tax, but not Federal. All income, whether reported or not, whether cash or not, even barter or in-kind income, is taxable.
That said, you have to make a personal decision on what level is worth tracking, and the IRS has to decide how aggressively it wants to audit.
Agreed. But from what I recall having worked in restaurants, etc, the IRS does take steps to encourage reporting of any cash wages by pressuring employers to notify their employees of that obligation.
So it must be considered a signifcant source of taxable income to them.
But of course thats just one example of possible cash income...