2017 Tips Explanation
“In 2017, Five Senses Spa, Salon & Barbershop guests showed their appreciation to our service providers with gratuities totaling $170,000. Tips are considered wages, therefore, I as the employer paid for Social Security, Medicare, State Unemployment Tax and credit card fees that amounted to $19,000 in costs which I received no revenue for.” ~Paola Hinton, Owner of Five Senses Spa, Salon & Barbershop
Paola has had the opportunity to bring attention to an unfair tip taxing on businesses in the beauty industry that primarily impacts business owners negatively, and ultimately effects employees as a result. With the support of the Professional Beauty Association (PBA )for the past decade and Congressman Darin LaHood since spring 2018, the hopes is to have a bill passed to extend a tax credit for businesses across the nation that facilitate tips for their employees within the beauty industry - just as the food service industry was granted in 1993.
Like the restaurant industry, salon and spa professionals receive a significant amount of their income through tips, which by law must be reported as wages and income. Salon and spa owners do NOT receive any of this tip income yet are required to pay taxes on it: Beauty industry employers are responsible for paying the 7.65% FICA (Social Security and Medicare) taxes on all employee income, including customer-paid tips.
Paola explains the reality of the costs associated with collecting and facilitating tips (Social Security Taxes, Medicare Taxes, State Unemployment Taxes, credit card percentages and growing credit card fees) for employees by showing her personal business numbers that visually shows the following,
- A $20 tip to an employee costs Five Senses $2.24+
- During the more generous times where guests tip higher for special occasions and holidays, a $100 tip to an employee costs Five Senses $11.18+
- Over the course of 2017, $170,000 in tips for employees ended up costing Five Senses $19,000+
The costs on tips that business owners do not receive any income from is alarming and unfair. Paola has been educating people in the industry to understand the positive impact this bill would have on businesses and employees alike. The credit would allow for business owners to reinvest into their company and employees, offer additional employee benefits, hire more people their communities, and the list of opportunities goes on.
The Professional Beauty Association has a dedicated section of their website devoted to FICA Tip Tax Credit information. The PBA has made it simple for business owners and professionals to take action by sending a message to Congress to support the Small Business Tax Fairness and Compliance Simplification Act with just one click. https://p2a.co/HieFA3O