The IRS and You: Independent Worker Classification

The professional beauty industry provides opportunities for many individuals with talent, creativity, and artistic capabilities. Most professionals in the industry are passionate about learning the latest trends, keeping up with what is in and out in fashion, and truly treat their careers as an art. Many achieve exceed their own expectations by becoming business owners, manufacturers their own product lines, and educators teaching their skills to new upcoming professionals. Landing a position within a great salon is an exciting prospect and a coveted opportunity. Salon owners and leaders mentor new employees and foster their learning through guidance and teaching new skills and techniques.

A licensed beauty professional that rents or leases space and works independently may be classified in different ways when it comes to reporting taxes; it is up to the Internal Revenue Service (IRS) to decide how the individual is classified as self-employed.

Perhaps another lure into the professional beauty industry is the idea of renting or leasing space and doing business as an independent contractor. A licensed beauty professional that rents or leases space and works independently may be classified in different ways when it comes to reporting taxes; it is up to the Internal Revenue Service (IRS) to decide how the individual is classified as self-employed. The correct IRS classification will have an impact on how you file your taxes, pay into social security, and pay Medicare taxes.  Licensed professionals that rent or lease a work station/area are required to obtain appropriate business licenses, a sales tax number if selling products, report their earnings (service, sales, and tips) directly to the IRS, and pay federal, state, and local taxes. According to the IRS, tips are reportable as taxable income.

The IRS considers the salon industry to be cash intensive. Correct classification, licensing, and worker classification directly affects the entire industry. The importance of correctly reporting your income cannot be stressed enough; it is your legal responsibility. According to the U.S. Bureau of Labor and Statistics, the average salary (in 2010) for a licensed cosmetologist ranged from $16,350 to $41,540 a year.  Under reporting income impacts the national data and statistics for the professional beauty industry career field, it also impacts the amount of student loan funding granted through the federal government for cosmetology students.

Under-reporting affects professionals in the beauty industry at a personal level, too: Applying for a home a car loan could be a challenge if your income on paper is much less than what you actually take home. Properly educating yourself and others is key to elevating and further legitimizing the careers of beauty professionals. Beyond your artistic capabilities, talent, and creativity you must also become business knowledgeable too. The penalty for failing to comply goes beyond a fine; it hurts everyone that is passionate and cares about the success of the beauty industry.

Here are some resources to learn more about your specific tax responsibilities:

Self-Employed Individuals Tax Center: www.irs.gov/businesses/small/article

IRS Form SS-8 - Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding: www.irs.gov/pub/irs-pdf/fss8.pdf

Publication 15-A – Employer’s Supplemental Tax Guide: www.irs.gov/pub/irs-pdf/p15a.pdf

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