Congressman Darin LaHood (R-IL) and Congresswoman Suzan DelBene (D-WA) recently introduced H.R. 6736 to update and modernize existing laws to provide equitable treatment and administrative relief to small businesses engaged in the hair care and beauty service industry. This legislation would extend the Federal Insurance Contribution Act (FICA) tax tip credit—which is currently available to the food service industry—to employer-based beauty service establishments where tipping is also customary.
Currently, more than 80 percent of the 1.2 million beauty industry businesses employ less than ten employees, which are predominantly owned and operated by women and minorities.
“As Congress continues to work to improve opportunities for small businesses and taxpayers by modernizing our tax code, I believe the bipartisan legislation we are introducing today will create a more level playing field for small businesses, will improve reporting of tip income, and will help businesses navigate IRS administrative rules and procedures,” stated Rep. LaHood. “In an industry where the majority of businesses are owned and operated by women and minorities, these long overdue improvements to the tax code will provide direct relief tothousands of small business owners and millions of professionals, much like similar industries have benefited from for decades.”
“This legislation is a commonsense bipartisan solution that brings parity to main street business owners and their employees. Individuals in the hair care and beauty industry rely heavily on tips to support their families. These individuals should receive the same benefits as those in other industries who are currently enjoying a fairer, simpler approach to tax administration for tipped workers. I believe this legislation offers equal treatment under the tax code and much needed financial relief for small businesses that support our communities,” said Rep. Suzan DelBene (DWA).
Specifically, the legislation would modernize the FICA tax tip credit by extending the tip credit to the beauty industry’s many small businesses with tipped employees. The FICA tax tip credit is part of an integrated compliance system that helps ensure accurate reporting of tip income to address tax gap concerns and reimburses employers for the implementation of systems and processes to account for tip income. Extending the FICA tax tip credit should reduce tax burdens and improve reporting of tip income, as it did in the food and beverage industry. Tips are paid as a gratuity by the client directly to the service provider – employers are required to pay FICA taxes on such tips even though the tip income is the sole property of the employee and the employer is not involved in the tip transaction.
“In 2017, Five Senses Spa, Salon & Barbershop guests showed their appreciation to our service providers with gratuities totaling $170,000. Tips are considered wages, therefore, I as the employer paid for Social Security, Medicare, State Unemployment Tax and credit card fees that amounted to $19,000 in costs which I received no revenue for,” says Paola Hinton,owner of Five Senses Spa, Salon & Barbershop in Peoria, Illinois.
Level the playing field for beauty-based businesses by showing your support for H.R. 6736. Simply CLICK HERE to send a letter to your Congress representative asking them to support the Small Business Tax Fairness and Compliance Simplification Act. showing support for H.R. 6736.