The Professional Beauty Association (www.probeauty.org) is on a mission to bring fairness to the treatment of tip income in the beauty industry. The Small Business Tax Equalization and Compliance Act, known commonly in the industry as the FICA Tip Tax Fairness legislation, would extend the current 45(b) FICA tax credit to salon and spa owners — a credit currently granted to restaurant owners.
In 1993, Congress granted the restaurant industry a dollar-for-dollar tax credit — now known as the 45(b) tax credit — on the employer’s share of FICA taxes paid on tip income above the minimum wage. This policy was instituted because Congress recognized that tips are a gratuity paid to wait staff by the customer, and employers should not be responsible for paying FICA taxes on income that was not paid by them. Employers in the salon industry are not currently eligible to receive the 45(b) tax credit, even though their employees, like those in the restaurant industry, earn a large portion of their income through tips. Salon owners do not receive any of this tip income, yet are required to pay the 7.65% FICA taxes on it.
According to Myra Y. Irizarry Reddy, government affairs director for the PBA, the FICA Tip Tax Fairness legislation has bipartisan support in both houses of Congress, yet there have been some challenges in getting it passed. “It can’t be passed as a freestanding bill, so anything permanent has to be part of a larger tax reform package, which has been stalled in Congress,” says Reddy. In fact, the latest hiccup in the process is that the most recent tax reform proposal had the 45(b) credit for the restaurant industry slated for elimination as a cost-saving measure.
Still, the PBA lobbyists are optimistic that a new Congress will take up the bill. “They’re not going to forget about us,” says Reddy. “There’s no reason salon owners should be required to pay tax on income they’re not getting or benefitting from.”
For more information, go to www.probeauty.org/fica.