WASHINGTON, D.C. – U.S. Senator Olympia J. Snowe (R-Maine), the Ranking Member of the Senate Small Business Committee, has introduced legislation to ensure employees within the cosmetology industry receive tax treatment comparable to others in tip-dependent businesses. The Small Business Tax Equalization and Compliance Act, S. 974, would provide the cosmetology industry with the same tip tax credit currently available to restaurants.
“It is critical we level the playing field for people working across industries whose income is dependant in part on tips,” said Senator Snowe. “Extending the tip tax credit to salon and barber shop professionals will protect them from an unfair tax on wages and allow them to reinvest in their businesses, create new jobs, and provide for new economic opportunities in their local communities. Moreover, ensuring that these working professionals are correctly paying into Social Security is vital to their future retirement security.”BACKGROUND: According to the U.S. Census Bureau, 98 percent of cosmetology industry firms have only one establishment; 92 percent of salon establishments have sales of less than $500,000; and 82 percent of salon establishments have fewer than 10 employees. Currently, these employees receive gratuities from customers rather than from the business in the form of wages, while their employers generally remain liable for reporting and paying any Social Security and Medicare taxes on those gratuities. In the restaurant industry, there is a corresponding tax credit to offset these liabilities, since the business was not the one that paid the gratuities. Thus, this bill would protect salon and barber shop owners from unnecessary tax and reporting burdens, just as restaurant owners are currently protected.