California hair and nail salons may provide services outdoors under new rules announced this week that aim to provide a lifeline for personal care services decimated by the state’s shutdown orders. (July 22)
As the second-highest tipped industry, salons should receive parity with the restaurant industry in the tax code, but they do not. We need Congress to apply the 45B FICA tax tip credit to salons.
- Paige Garland is owner of Rachel’s Salon & Day Spa in Memphis.
As lawmakers struggle to come to a stimulus package agreement, the salon industry is coming to a collapse under the weight of the current economic crisis.
The 45B FICA tax tip credit would give our burdened industry a lifeline — if only it were included in the stimulus package. As of today, it’s not.
There are over 1.2 million salons in the United States, and the COVID-19 pandemic has resulted in hundreds of thousands of salon owners and stylists who are now out of work.
For those who are still operating, revenues are down over 50% in the first half of 2020. Between February and April 2020, the number of jobs at employment-based salons dropped by 84%, according to data from the Bureau of Labor Statistics.
Only 93,000 people were on payroll at employment-based salons in April – down from 569,000 in February. This represents the fewest number of salon jobs in well over five decades. In June, salon jobs remained 200,000 (35%) below pre-coronavirus employment levels.
Business is nearly dead and tourists aren’t coming like they once were
As a salon owner in a historic building in downtown Memphis, my business has been far from spared from these sobering realities.
In June, our service revenue was down 90% from last year. Our service menu has had to be severely trimmed down due to capacity restrictions and social distancing mandates, and the increase in COVID-19 cases has continued to contribute to a decline in business.
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Our tourist clientele is obsolete until travel becomes a reality again. I fear that if this path continues, in order to survive, at best we will have to change our business model and strategies, and at worst we may become one of the statistics I previously mentioned.
While we were able to secure funds from the PPP loan, that funding has come and gone. I have not yet submitted my forgiveness application, as that has been as fluid as the virus itself, so I have held off for final guidance.
How the tax tip credit would work to help us
Like my salon, 83% percent of salon businesses have fewer than 10 employees. These small businesses, owned 60% by women and 34% by minorities, employed a workforce of roughly 1.3 million professionals. Salons are the hardest hit, and last to reopen. Like many woman-owned businesses, we have been forgotten.
We are watching the collapse of the beauty industry. But there is a solution that would extend a much-needed lifeline — by allowing access to an existing credit in the IRS tax code, the 45B FICA tax tip credit.
In 1993 Congress passed the 45B FICA tax tip credit allowing restaurants to claim a dollar-for-dollar tax tip credit on the employer portion of FICA taxes that businesses pay on tips that employees receive directly from their customers.
Paige Garland (Photo: Submitted)
Because restaurants do not earn revenue on employee tips, it makes sense to receive a credit for the taxes they pay to facilitate reporting those earnings to the IRS. As the second-highest tipped industry, salons should receive parity with the restaurant industry in the tax code, but presently they do not.
I have always allowed our team to accept tip income, and in doing so I am paying an incredible price. Over the years I have paid out thousands of dollars in taxes on money my business never saw.
In a business my size, that is proportionately a very large sum that could have been allocated to education or other improvements in our business to help create an even more sustainable future for my employees and my family. Today, a temporary retroactive application of this credit would be a lifeline to survive.
Paige Garland is owner of Rachel’s Salon & Day Spa in Memphis.
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