Industry • Community

5 Things Salon Owners Must Know About the FICA Tax Tip Credit

COVID-19 continues to loom over everyone, wreaking havoc on small and corporate scale businesses alike. The government has taken great strides to provide much-needed relief for essential industries, and salons deserve to be included in the next step. 

Enter the 45B FICA Tax Tip Credit—a recent break given to restaurants to separate tips from reported revenue. The Professional Beauty Association (PBA) is working diligently to push the inclusion of salons into the fold. Here are a handful of important facts surrounding the credit and what you can do to help.

What is the 45B FICA Tax Tip Credit?

The goal of this extension to salons per the Professional Beauty Association is to “provide a lifeline to salons by temporarily extending the Section 45B FICA tax tip credit in H.B. 1349/S.2634 to the salon industry, effective 1/1/2015.” What this means is that the credit would absolve the mandatory 7.65% FICA (Social Security and Medicare) on tips that stylists receive.

How will it help salons?

Currently, salon tips are counted with overall revenue for the salon, despite the money going to the stylists themselves. As it stands, a significant amount of stylists are choosing to go freelance, where the rules and regulations aren’t as stringent as working beneath a salon heading. This could ultimately destroy the salon industry—an industry that provides entry-level jobs and employs roughly 1.3 million professionals.

Why is this credit important?

The guidelines set by the Paycheck Protection Program available to small businesses generally don’t apply to the majority of salons. The Professional Beauty Association addresses the following issues:

  • Many salons will not reopen in the first or second phase, leaving them closed potentially into late summer or early fall. 

  • Salons that can reopen have limitations placed on the number of staff allowed in the establishment. Only 93,000 people were on payroll at employment-based salons in April—down from 596,000 in February.

  • Services provided to the clients are restricted, directly impacting staff and revenue

A survey of 1200 salon business owners shows that 99.7% of the industry has been closed for over a month and 93% anticipate being able to reopen on a partial basis. Only 53% of salons believe they have the financial capability to reopen. The 45B FICA Tax Tip Credit would create immediate liquidity for owners to claim, staying in business.

Why would it be effective back to 2015?

Having the credit applied retroactively would enable access to taxes paid for four years. Salons are in dire need of these funds to avoid permanent closure and loss of staff. In addition, many states have new requirements for PE equipment, cleaning, and insurance—94% of salons expect to face these new challenges and need the revenue to do so. To claim back four years of taxes would grant an immediate relief that the Paycheck Protection Program doesn’t offer.

What can I do to help?

The PBA has a petition available to help include salons in the upcoming stimulus legislation. As of this writing, it has nearly 22,000 signatures and growing. It takes one minute to sign. Your voice can help hundreds of thousands of stylists and salons across the country keep their doors open.

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