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Hey everybody, this is Gene Marks, and welcome to this week’s episode of Small Biz Ahead, my podcast that I do with The Hartford every week and even more often. This week though, I want to talk about a little bit of advice for you if you are in the beauty salon business and also other businesses that provide, where their workers get a lot of tips. There is a potential change that might really benefit you and it’s related to a new bill that was introduced just recently by two senators, a bipartisan bill. The bill was introduced by Senator Tim Scott, a Republican from South Carolina, and the co-sponsor was Senator Ben Cardin, a Democrat from Maryland, and it has to do with tipping in the hair salon and barber shop and beauty industry. How big is this industry? It’s like pretty huge. There’s like almost a million and a half small businesses that operate in that industry, with about 80% of them are very small businesses, and a significant number of them are minority owned.
So if you’re in the beauty salon industry, if you’re a barber, if you’re a cosmetologist, this topic may really, really interest you because it looks very probable that this bill will find its way at some point getting passed. It’s a tax credit, so it’s money in your pocket. And let me explain to you just about how much money it could potentially be. Well, let me throw this out to you. If you’ve got about 10 employees, it could save you close to $8,000 a year. So you’re listening now. Well first of all, if you’re in the restaurant business, there is a tax incentive, a credit that is available to you that a lot of other industries do not have. It’s a tax credit on your employer taxes, and it’s calculated on the total wages that your employees make both hourly and tipped wages. So, for example, if you’re in the restaurant business and you pay your workers per hour, and then they get tips on top of that, you take the total wages that they’re making and you have to pay your employer’s taxes.
The FICA tax on that total amount, it’s like 6.2%. By the way, that’s the case for all industries, not just restaurants. However, the restaurant industry has got a special tax credit. It’s called the 45B tax credit. And what it allows them to do is exclude some of those tipped wages from the calculation. It’s basically any tipped wages over $5 and 15 cents an hour. You can look up 45B tax credit to get into the actual calculation. But what’s really important about this is because restaurant owners, their employees get a lot of tips. They are excluded from paying the employer’s taxes on that employee’s entire income. They can exclude some of that tipped income when they pay their employers taxes. So that’s a big benefit for a lot of people in the restaurant industry. Well, that big tax benefit has got the attention of other industries, particularly the beauty salon industry, which is why Senator Scott and Senator Cardin have introduced their new bill.
It is called the Small Business Tax Fairness and Compliance Simplification Act. And that bill wants to extend that same benefit that restaurant owners are getting to small businesses in the beauty industry as well, which means if you’re running like a barbershop or a beauty salon or any cosmetologist or nail salon and you’re paying your workers an hourly wage and then they’re getting tips, and then you’re required to pay an employer’s tax FICA tax on that combined wage. If this bill gets through, you’ll pay less tax. And I did the math and again, if you’ve got say, 10 employees in your business, that tax savings on average could save you as much as $8,000 a year. So it’s a huge bill that would make a huge difference to people in the beauty industry.
And that is why it has industry support from all the associations, the Professional Beauty Association, the International Spa Association, the National Association of Barber Boards of America, and other associations and coalitions that are very much behind this bill that’s making its way through the Senate right now. So, just bear in mind that, that’s of interest for you if you’re in the beauty salon industry. Listen, guys, I wish we wouldn’t, didn’t even have a tipping society at all. I wish, you know, we would abolish tips, we would pay our employees more. We would pass the cost down to our customers. I mean, our customers are paying 15 to 20% more anyway. What difference does it make? And then we can get around these complicated tax bills and reporting rules and compliance rules that we have to abide by.
But in the meantime, that’s not the case. So again, if you’re in the beauty industry, keep an eye out for this bill, okay? It is very, very important for you. And if you are belonging to any of your associations in the industry, some that I mentioned before, you definitely want to reach out to them and offer the support for their bill. Find out how you can get involved in it. It’s the Small Business Tax Fairness and Compliance Simplification Act. It will give you and the beauty industry, and again, that’s a barber, cosmetologist, nail salon. It will give you the ability to take advantage of this really big tax credit on your payroll taxes that your colleagues in the restaurant industry are already taking advantage of. My name is Gene Marks. I hope this advice and tip helps you this week to run your business, particularly if you’re in the beauty industry. You’ve been listening to The Hartford Small Biz Ahead Podcast. If you need any more tips or advice for helping to run your business, please join us at SmallBizAhead.com or SBA.TheHartford.com. Hope you got some value out of this week’s episode. I’ll be back next week with another tip to help you run your business that much more profitably and productively. We will see you then. Take care.
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