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Struggling Salons Seek Tax Parity With Pandemic-Hit Restaurants

July 6, 2020, 8:46 AM

Beauty salons and barber shops are in turmoil amid the coronavirus pandemic.

They can’t offer takeout and delivery like restaurants, must invest in protective equipment, and have to operate at limited capacity. Some standard services, such as facials and beard trims, can’t be provided. And the rules keep changing.

The industry, which has a substantial percentage of women- and minority-owned businesses, is now turning to Congress to change the tax code and provide them with much-needed cash.

The salon owners are pushing legislation that would give these businesses the same Federal Insurance Contributions Act (FICA) tip tax credit that is available to restaurant owners, another industry where tipping is common. The Section 45B credit is given to employers for payroll taxes they have paid on tips from customers. FICA is a payroll tax that employers and employees pay to support Social Security and Medicare.

That difference means salons are missing out on thousands of dollars in tax savings each year.

The Professional Beauty Association, a trade group with over 300,000 paid members nationwide, has for more than two decades now asked for parity with the restaurant industry. With members’ survival at stake, the demand has taken on a fierce urgency. They want a temporary credit on the FICA tip tax and they want it retroactively beginning in 2015.

Role for Congress

The general idea has bipartisan support, meaning that the provision has a good chance of progressing in Congress. Lawmakers are expected to start fully negotiating the next relief package late this month.

A House bill (H.R. 1349) that would alter the tax treatment of FICA taxes has six Republican co-sponsors, led by Ways and Means Committee member Darin LaHood (R-Ill.). More than a dozen Democrats have signed on to the bill. A Senate version (S.2634) is sponsored by Rob Portman (R-Ohio) and Ben Cardin (D-Md.). That bill was introduced pre-pandemic, and the plan now is to move forward with a temporary provision that would give the credit to the salons, congressional aides said.

LaHood brought up the issue during a Ways and Means subcommittee hearing June 18, referencing tax code Section 45B, which dictates the credit.

“Our goal is to extend Section 45B, currently available to restaurants, to the beauty industry and barbershops because they have been disproportionately affected,” he said.

A Democratic aide said that there is a push to include some business-specific tax issues in the next Covid package, and that the issue has strong bipartisan interest.

Like other businesses affected by the pandemic, the salon industry has had help from the Paycheck Protection Program, which is designed to help businesses during the pandemic. According to an early-May survey of 1,200 salon owners by the Professional Beauty Association, about eight in 10 salon owners said they had applied for PPP loans. At the time, four in 10 respondents said they had applied but hadn’t received funding.

Atypical Industry


Discussions about race and gender equity have spiked in the aftermath of George Floyd’s killing in Minneapolis police custody. The industry association representing salons has been pointing out their uniqueness during this time.

The vast majority—83%—of salons employ fewer than 10 people, the Professional Beauty Association said. About 60% of the businesses are owned by women and 34% by minorities. The total number of employees is about 1.3 million.

The temporary retroactive tax credit can make a difference between staying in business or closing shop, said Myra Irizarry Reddy, government affairs director for the association.

“Because this industry is service based, they weren’t able to do like a curbside pickup to generate some type of revenue,” Reddy said.

Reddy provided examples from different states on the dollar amounts that salons would get if Congress agreed to make the change. A salon in Round Rock, Texas, would get about $31,000 in cash; another, in San Jose, Calif., would get $151,000.

That kind of money would make a difference. Lisa Lane, who runs Lisa’s of Annapolis, in Maryland, said her revenue is down by almost half since the end of March when she had to close her store. She reopened in mid-May with restrictions.

Lane is familiar with the decades-long demand by the salon industry for tax parity.

“They’ve been pushing it for a while, and now suddenly because of what’s going on it kind of is more relevant and has more attention,” Lane said.

Real Push


Paola Hinton, the owner of Five Senses Spa, Salon & Barbershop, in Peoria, Ill., has been part of the campaign to have tax parity with the restaurant industry.

She said that her store, which employs 20 people, averages about $162,000 in tips every year. That would mean that she pays about $12,000 in FICA taxes every year. If Congress were to retroactively impose the credit, she could get about $60,000 in cash.

The current system presents an additional challenge, Hinton said. Some customers have been leaving very generous tips for her workers because of the pandemic, which result in higher FICA taxes.

“Our industry, we always thought it was recession proof. But there’s one thing that can stump that. And that’s when you get shut down by the government,” Hinton said.

To contact the reporter on this story: Kaustuv Basu in Washington at kbasu@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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