Two members of Congress teamed up Friday to introduce a bipartisan bill that would offer tax credits for income from tips to beauty salon owners and workers.
Rep. Suzan DelBene, D-Washington, and Darin LaHood, R-Illinois, together introduced the Small Business Tax Fairness and Compliance Simplification Act, which would offer tax relief to beauty professionals and salon owners by extending the Federal Insurance Contribution Act (FICA) tax tip credit to the beauty service industry. The credit helps provide more accurate reporting of tipped income. The legislation would also reimburse small businesses for implementing reporting systems for tips.
The tip credit is already available for restaurants, bars and other parts of the food service industry. When the credit was made available in the food and beverage industry, it improved reporting of tipped income, and its proponents argue it’s time to give parity to the beauty industry. The legislation also comes at a time when small service businesses like beauty salons have been hurt by the COVID-19 pandemic, with many of them forced to shut down or put in place restrictions on how many customers can be in the salon, along with installing safeguards to protect the staff and customers from infection.
Tips are generally paid as a gratuity by a client directly to the employee offering the service. Employers have to pay FICA taxes on those tips, even though they’re supposed to be the sole property of the worker, and the employer often isn’t directly involved in the tip transaction.
The beauty industry is mostly made up of small businesses, the lawmakers pointed out, and the majority of beauty salons are owned by women and people of color.
“Workers in the beauty industry – predominantly women of color — rely heavily on tips to support their families,” DelBene said in a statement. “They should receive the same tax fairness as those in other industries that currently have a fairer and simpler administration system for tipped workers. This bipartisan bill would bring commonsense tax relief to beauty shops and their workers.”
Over 80 percent of the 1.2 million beauty salon businesses in the U.S. currently employ fewer than 10 people, she and her colleague noted.
“In the beauty industry, the majority of businesses are owned and operated by women and minorities and workers rely predominantly on tips,” LaHood said in a statement. “Our bipartisan bill will provide direct tax relief to thousands of small business owners and professionals, much like similar industries have benefited from for decades. As small businesses continue to navigate the COVID-19 pandemic, our commonsense bill will provide fairness and support to the beauty industry and their workers.”
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