More than a dozen PBA members and executives from beauty companies across the U.S. joined forces on Capitol Hill Thursday, October 13, for the 2011 PBA Lobby Day. The team split up into multiple groups for a full day of non-stop meetings with members of Congress and their staffs to discuss the importance of the Small Business Tax Equalization and Compliance Act, commonly known as the FICA Tip Tax Credit, for the professional beauty industry.
The Tip Tax Credit, if passed by Congress, would provide employers a dollar-for-dollar credit on FICA taxes paid on employee tip income.
Every salon/spa professional, including practitioners and salon/spa owners, is required by federal law to report tips as part of their income. Compliant beauty professionals not only report tip income but also pay the required FICA (social security and Medicare) taxes on those tips.
This legislation has been at the top of PBA’s political agenda for several years and many advances have been made.
“Last year our Bill was introduced in both the House and Senate and it’s all because of the hard work and dedication of industry advocates,” said Myra Irizarry, PBA Director of Government Affairs. “But this is only the beginning. There is still a lot of work to be done to get this legislation passed into law.”
Timing is Everything
To get the attention this issue deserves, it is imperative that industry professionals get involved and tell decision makers what this credit can do for the industry and for small businesses across the nation.”
With economic recovery following the worst recession our country has seen in nearly 100 years at the top of most politicians’ minds, the current political landscape offers several opportunities, as well as setbacks, to getting the FICA Tip Tax Bill passed.
The current Congress is looking for measures to cut spending, balance the budget, and is focused on overall tax reform. The ongoing fiscal discussion between the current partisan, polarized government is creating challenges and road blocks for any legislation to move forward.
To get the attention this issue deserves, it is imperative that industry professionals get involved and tell decision makers what this credit can do for the industry and for small businesses across the nation.
“Not getting involved is handing over a check every year to the federal government for taxes on money that you, as the employer or business owner, did not earn, do not profit from and that you can’t use to grow your business,” said Serena Chreky, PBA Government Affairs advocate and owner of Andre Chreky Salon in Washington, D.C.
A Question of Fairness… This Credit is Nothing New
More and more beauty professionals have begun to see the bigger picture: tax compliance, risk of IRS audits, legitimizing salaries, income honesty, tip reporting, federal student loan funding, Bureau of Labor and Statics income reporting.”
The professional beauty industry is the second highest tipped industry in the U.S., just behind the restaurant industry. Unfairly, Congress has segmented the restaurant industry by allowing them since 1993 to claim a dollar-for-dollar FICA Tip Tax Credit on employee tip income. Salon and spa owners pay on average $11,000 in taxes per year on employee tip income, income that the owner doesn’t benefit from.
So, the question you should be asking yourself: Why not the professional salon/spa industry? Why has this unfair tax gap remained in existence for 14 years? It all comes down to a lack of participation.
The professional beauty industry’s involvement has only recently begun to gain momentum. More and more beauty professionals have begun to see the bigger picture: tax compliance, risk of IRS audits, legitimizing salaries, income honesty, tip reporting, federal student loan funding, Bureau of Labor and Statics income reporting. Every professional is impacted.
“This issue creates a trickle-up effect,” said Joe Kendy, Sen. Vice President and General Counsel for Shiseido. “Everyone is affected, from students to stylists to salon owners, from the smallest distributor to the largest manufacturer.”
Compliance… Not Just Your Responsibility, To Your Benefit
Compliance is not an option. It is a responsibility under federal law. Every working professional is required to report their full income, including tips, whether they are a business owner, employee, or licensed contractor.
Failing to correctly report full income:
• Undervalues Bureau of Labor and Statics reporting on the average cosmetology salary, which in turn lowers available federal loans for cosmetology students
• Reduces the potential to receive personal loans for large items, such as vehicle, home, and small business loans
• Under-reporting opens the door to IRS audits that could lead to legal action and thousands of dollars in IRS fines and legal fees
• Devalues the legitimacy of the beauty industry as a whole
However, truthful income reporting leads to both personal and professional success.
“Because my team is compliant and reports their actual income, several of them have been able to secure large loans for cars and mortgages, including a 26-year-old stylist who just purchased her first home completely on her own,” explained Tiffany Conway, owner of CoCo Cheveux Salon in Portland Maine and a PBA Government Affairs advocate.
Next steps… How to Get Involved
It is every professional’s responsibility to lift the industry, increase legitimacy, and educate colleagues about the importance of compliance and advocating for tax fairness for the industry.
Be involved in shaping the future of the industry, like the PBA Government Affairs advocates that join us on Capitol Hill every year.