Reducing compliance burdens for the beauty industry

In my hometown of Peoria, Ill., small businesses like Paola Hinton’s Five Senses Spa and Salon are part of the fabric of the community — helping make Peoria an All-American City. Over the past year, small businesses like Five Senses Spa and Salon, have put in immense effort to comply with COVID-19 restrictions to remain open, offer services to the community, and survive the challenging economic climate of the pandemic.

Thanks to bipartisan efforts in Congress last year through the Paycheck Protection Program and Small Businesses Administration’s (SBA) loan support programs, many businesses and workers have been able to manage and endure COVID-19 hardships. However, more work in Congress is needed to ensure that small businesses and employees can thrive as our economy gets back to pre-pandemic normalcy.

Over 1 million Americans in small towns, big cities, rural communities, and urban neighborhoods are employed by salons, beauty parlors, and barbershops. Over 80 percent of the 1.2 million beauty industry businesses have less than ten employees and are owned and operated predominantly by women and minorities.

In the beauty industry, it is common practice for employees to be paid tips by clients, similar to the foodservice industry. Unlike the foodservice industry, beauty industry small businesses are required to pay FICA taxes on tips, even though the employer is not involved in the tip transaction. This places unnecessary burdens on small business owners by requiring a significant investment of time and resources to comply with regulations — time that could be spent hiring and training employees and growing and improving their small business.

Since 2018, I have joined with Rep. Suzan DelBene (D-Wash.) to help address this burden and champion H.R. 821 — the Small Business Tax Fairness and Compliance Simplification Act. Our bipartisan bill would extend the tax code’s Federal Insurance Contributions Act (FICA) tax tip credit — which is currently available only to the foodservice industry — to the tens of thousands of employer-based beauty service establishments.

The FICA tax tip credit would act as a reimbursement for the cost employers incur in accounting for tip income. By reducing the tax burdens for these small businesses, as well as improving the reporting process of tip income, the Small Business Tax Fairness and Compliance Simplification Act would provide equitable treatment to the beauty industry and allow these businesses to further support their employees and expand their businesses. Extending the FICA tax tip credit and creating parity with other tip-industries is a commonsense measure to help with the continued economic recovery from COVID-19.

Small businesses, like Five Senses Spa and Salon and many others across my district, are ready to return to normal. As COVID-19 continues to decline and Americans get back to activities of daily life, it is time for Congress to pass the Small Business Tax Fairness and Compliance Simplification Act, reduce regulatory burdens, and help millions of impacted small businesses across America.

LaHood represents the 18th District of Illinois and is a member of the House Ways and Means Committee.