January 2012

Steve Sleeper

Beauty Insider| by Steve Sleeper


Do You Know the Cost of Dishonesty in Our Industry?

by Guest Writer Myra Irizarry

Beauty professionals from across the U.S. are joining forces to reach out to members of Congress to shed light on the importance of the Small Business Tax Equalization and Compliance Act, commonly known as the FICA Tip Tax Credit.

[actual words of the bill: S.974 - Small Business Tax Equalization and Compliance Act of 2011 — A bill to amend the Internal Revenue Code of 1986 to expand the tip tax credit to employers of cosmetologists and to promote tax compliance in the cosmetology sector.]

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 or 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 the Professional Beauty Association (PBA)'s political agenda for several years and there have been many advances. The Bill was introduced in both the House and Senate in 2010. That is just the tip of the iceberg.

With economic recovery being at the forefront 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 ways to cut spending, balance the budget, and focus on overall tax reform. The ongoing fiscal discussion between the current partisan, polarized government is creating challenges and roadblocks 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.

This Credit is Nothing New

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 does not benefit from.

Therefore, the question you should be asking yourself: Why not the professional beauty 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 Static's 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 and salon owners and the smallest distributor to the largest manufacturer."

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 report income correctly undervalues Bureau of Labor and Statistic's reporting on the average cosmetology salary, which in turn lowers available federal loans for cosmetology students. It also 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, as well as devaluing the legitimacy of the beauty industry as a whole.

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.

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. Become involved in shaping the future of the industry.

Here are just a few ways to get active:

Myra Irizarry is the Director of Government Affairs for the Professional Beauty Association (PBA), the nation's largest organization of beauty professionals. PBA Government Affairs works at both the state and federal levels to promote legislative efforts that support and protect the beauty industry. Learn more at probeauty.org/advocacy.