On your W-2, tips should be included in the wages in W-2 box 1, and shown separately in box 7. If your tips are included in box 1, but not shown separately in box 7, the W-2 is not filled out correctly.
If the employer refuses to correct the W-2 you will have to include a Form 4852 substitute W-2 in your tax return. When you enter the W-2 in TurboTax, enter the correct information instead of what's on the W-2 from the employer. That means you will subtract the amount of tips from box 3 (not from box 1) and enter the amount of tips in box 7.
After you enter the W-2 information, you will get a screen that says "Let's check for uncommon situations." Check the box for "Didn't get a W-2" (even though that's not your situation) and click Continue. The next screen asks if you want to complete a substitute W-2. Select Yes. Proceed through the screens, entering the requested information to complete Form 4852. It will ask you to enter explanations of what you did to try to get a correct W-2 from your employer, and how you calculated the amounts that you entered. The prompts on the TurboTax screens assume that you didn't get a W-2 at all, but that's not what the actual Form 4852 says. The form says to explain your efforts to obtain an original or corrected Form W-2, and how you determined the amounts that you entered. TurboTax will include the Form 4852 substitute W-2 in your tax return.
After you complete the substitute W-2 TurboTax will ask you questions to determine if you are eligible for the deduction for tips.
You should not enter the tips as unreported tips. If you do that your tax return will include Social Security and Medicare taxes on the unreported tips. But you already paid those taxes. You don't want to pay them again.
