Have you ever quantified how much you pay in taxes on revenue you don’t actually see?

Accepting a simple $50 tip for your stylist means you pay $3.83 to the government, but you never see that back.

Multiply that across all services throughout the year and you are instantly looking at hundreds of thousands of dollars, sunk into funding pass-through revenue. The Small Business Tax Fairness and Compliance Simplification Act, known as the FICA Tax Tip Fairness legislation, would extend a dollar-for-dollar tip tax credit to owners of salons, spas and barbershops.

The 45B FICA tax tip credit was granted to restaurants in 1993 provides equality and compliance simplification and updates reporting requirements that would hold accountable rental establishments.

Like the restaurant industry, salon and spa professionals receive a significant amount of their income through tips, which by law must be reported as income. Owners do not receive any of this tip income yet are required to pay the 7.65% FICA (Social Security and Medicare) taxes on all employee income, including customer-paid tips.

More Than Tax Credits

There are three key components of this bill:

  • Improves Compliance – Shifts reporting responsibility for filing Form 1099 to the landlord, when renting to two or more individuals.
  • Promotes Tax Fairness – Streamlines income reporting efforts between rental space owners and renters providing professional beauty services, holding booth rentals accountable like W2 employers.
  • Relieves Employers of Tax Burden – Provides a dollar-for-dollar tax credit on the employer’s share of FICA (Social Security and Medicare) taxes paid on employee tip income.

Timing Is Important

Now is the time. There is momentum for this bill. Legislators recognize this industry as a growing and important economic contributor. The personal care sector is projected to grow by 13% between 2016 and 2026. That’s compared to the 7% of the overall economy. Investing in small business owners contributing to this sector is investing in a safeguard for the overall economy.

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