By Myra Irizarry, PBA Director of Government Affairs
Fair and equitable legislation is an essential component behind the success and prosperity of the professional beauty industry and each and every business. The Professional Beauty Association’s (PBA) government affairs program introduces, tracks, and responds to legislation at both the state and federal levels to protect the businesses of our members and the future of the entire industry. Over the past decade, PBA has championed one such piece of federal legislation that has the potential to relieve salon owners of the burden of FICA taxes on employee tips, money that doesn’t come from employers and that employers have no control over.
The Small Business Tax Equalization and Compliance Act, commonly known as the FICA Tip Tax Fairness legislation, would give salon owners a dollar-for-dollar tax credit, now known as the 45(b) tax credit, on the employer’s share of FICA (Social Security and Medicare) taxes paid on employee tip income – a credit the restaurant industry has benefitted from since 1993. 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.
This beauty industry legislation, which has bipartisan support in Congress, has moved forward each year due to the hard work of PBA, industry leaders, and volunteers throughout the country who support and understand that employers should not be held liable for taxes on tip income they do not pay out or benefit from.
Where We Are Now
PBA’s Tip Tax Fairness legislation has recently gained bipartisan support and was included in the House Ways and Means Committee Chairman’s, Dave Camp (R-Mich), draft consideration for tax reform. However, the legislation received a negative score by the Congressional Budget Office, meaning that it would not add revenue to the federal budget – an outcome that was a contradiction to a first-ever FICA study conducted in 2013 by an independent Washington D.C. based economic policy firm.
In February 2014, Chairman Camp formally introduced his tax reform proposal, which would completely eliminate the 45(b) tax credit, currently benefitting the restaurant industry. According to the Chairman’s tax reform package, the elimination of the credit will provide $10 billion in revenue back to the federal government over the next ten years.
Where does this leave the professional beauty industry? That all depends on a variety of factors. Will Chairman Camp’s tax reform package actually move through Congress? The general feeling at this point is no. Will parts of his tax reform package be taken and adopted in an attempt at tax reform in the next Congress? Yes – that is a strong possibility. Does his current proposal help business owners far more than the 45(b) tax credit would? This depends on the annual revenue/tax bracket the business falls under and how the business is structured.
Getting Heard in the Political Process
The old adage of pay-to-play, the idea that financial contributions weigh heavy on the outcome of what gets introduced in Congress, come into question. PBA has successfully introduced legislation, garnered bipartisan support, met with key members of Congress and their staffs, held multiple lobby days, connected beauty industry professionals with Congress, participated in Congressional hearings, and supported members of Congress that have supported the beauty industry.
PBA’s political support is by no means up to par with other national associations; for example, PBA does not have a Political Action Committee (PAC), which uses donations to fund campaigns. PBA’s support has been provided by the committed, generous individuals that truly support the FICA Tip Tax Fairness legislation. Unlike PBA, the National Restaurant Association (NRA), the sole benefactor of the 45(b) FICA tax credit, contributed over $367,250 in 2013. An additional $2,238,691 was spent by the NRA on lobbying in 2013, according to OpenSecrets.org. However, Chairman Camp’s tax reform proposal seeks to eliminate the restaurant industry’s tax credit despite their financial strength.
What lies ahead currently remains to be seen. As the tax reform package is reviewed, PBA will discuss how and when to move forward.
For more information about the FICA Tip Tax Fairness legislation, visit probeauty.org/fica or contact Myra Irizarry, PBA Director of Government Affairs, at firstname.lastname@example.org.
About the Author
Myra Irizarry is the director of government affairs for the Professional Beauty Association (PBA). PBA advocates for the rights of every member and is dedicated to tracking, introducing and responding to legislation at both the State and Federal levels with potential to affect the beauty industry. Visit probeauty.org for more information.