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Representative Darin LaHood

Representing the 18th District of Illinois

Rep. LaHood Holds Roundtable to Discuss Importance of Extending Tip Tax Credit to Salon Industry

October 11, 2018
Press Release

PEORIA, IL — Congressman Darin LaHood (R-IL) hosted a community roundtable with stakeholders across the hair care and beauty service industry yesterday to discuss his bipartisan legislation to update current law to provide equitable treatment and administrative relief to these small businesses. This legislation, introduced with Congresswoman Suzan DelBene (D-WA), would extend the Federal Insurance Contribution Act (FICA) tax tip credit to employer-based beauty service establishments where tipping is also customary—just as the food service industry was granted in 1993. Currently, over 80 percent of the 1.2 million beauty industry businesses employ less than ten employees, which are predominantly owned and operated by women and minorities.

“One of our primary goals in turning around our economy is to get government out of the way of small business so the private sector can flourish. This is why I was pleased to hear directly from employers across the hair care and beauty service industry who emphasized the need to create parity in the tax code and roll back burdensome red tape from the IRS, so this rapidly expanding industry can be on level playing field, just as the food and beverage industry was granted a quarter century ago,” stated Rep. LaHood. “In the hair and beauty industry, where the majority of businesses are owned and operated by women and minorities, extending these businesses tax benefits and providing administrative relief when dealing with the IRS is long overdue. I look forward to continuing the dialogue started today as this legislation moves forward so we can continue to finds ways to empower small business in our local communities.”

What others are saying:
“The impact of this is so large. This will allow the beauty service and salon industry be treated fairly be extending the FICA tax tip credit, which is already provided to the restaurant industry. This is the difference between hiring people, educating, obtaining equipment, and growing my business,” said Paola Hinton, owner of Five Senses Spa.  

“We are always looking to expand and grow in technology these days to be a step ahead and an expanded tip tax credit would allow us to invest in technology, add services, expand the company, and send bonuses out to employees. Extending the FICA tax tip credit would definitely be a plus for our employees and organization” said Nichole Corrington of Capelli’s Salon in Decatur, Illinois.

Peoria Journal Star: U.S. Rep. Darin LaHood picks up tips for tip-tax bill, by Steve Tarter
WMBD-TV: Beauty industry seeks lawmakers help to qualify for FICA Tax Tip credit, by Rebecca Brumfield
WYZZ-TV: Rep. LaHood hears from local small business salon owners regarding tip tax legislation

Background on this legislation:
Specifically, the legislation would modernize the FICA tax tip credit by extending the tip credit to beauty industry small businesses with tipped employees. The FICA tax tip credit is part of an integrated compliance system that helps ensure accurate reporting of tip income to address tax gap concerns and reimburses employers for the implementation of systems and processes to account for tip income. Extending the FICA tax tip credit should reduce tax burdens and improve reporting of tip income.

Tips are paid as a gratuity by the client directly to the service provider (e.g. a stylist) – employers (e.g. the salon) are required to pay FICA taxes on such tips even though the tip income is the sole property of the service provider and the employer is not involved in the tip transaction.

Bill text can be found HERE.

Issues: