Women-Owned Salons Deserve Tax Fairness

COMMENTARY

For nearly 50 years, the National Association of Women Business Owners has been the unified voice of more than 14 million women-owned businesses in America, including hundreds of thousands of beauty salons and barbershops.

As we begin a new year, and a new administration, many of these small business owners across America are optimistic about their futures. Yet, because of an unfair federal tax code, beauty salon and barbershop owners are tempering their optimism and looking to Congress to right a 30-year wrong.

Three decades ago, Congress gave tax relief to restaurants to promote job growth. Because restaurant workers like waiters and waitresses depend highly on tips to supplement their income, Congress granted a tax credit to restaurants to offset the FICA tax they must pay on their employees’ tips. This important tax credit has encouraged tipping and boosted the bottom lines of restaurants and tipped employees alike. It was a bipartisan consensus idea that has significantly benefited restaurants and our economy ever since.

Beauty salon employees, such as stylists and barbers, are just as dependent on tips as waiters and waitresses. Yet Congress has not given them a tax break and they are still required to pay FICA taxes on income that they never receive. This discrepancy between one industry heavily dependent on tips and another makes no sense; it is unfair, and it is long past time for Congress to fix it.

Make no mistake, this unfair double standard disproportionately hurts women.

Three-quarters of salons are owned by women — nearly three times women’s ownership rate for businesses overall. Most of these businesses are small: four out of five salons have fewer than 10 employees. For these small businesses, margins matter, and a high tax bill can be devastating.

Tax equality for the beauty industry is an economic issue, a fairness issue — and it is certainly a women’s issue.

But this issue is not just about business owners. It’s about their employees and the customers they serve. Just as taxes inevitably get passed on to consumers and workers, the benefits of tax equality would also get passed on to stylists and consumers as well. These indirect benefits would have an even greater impact on women in the workforce since five out of six beauty industry employees are women. 

This is not just a matter of economic theory. In recent months, a number of women-owned salons have spoken out and expressed their desire to hire more employees, invest in their salons, and provide better pay and benefits to their employees — if only the IRS treated them the same way they treat restaurants.

Those kinds of investments would benefit our whole economy.

Fortunately, key members of Congress recognize this problem and are taking action. The chair of the House Ways and Means Committee, Rep. Jason Smith, R-Mo., has mentioned this issue as a key provision of upcoming tax extension negotiations. In the Senate, Sen. Ted Cruz, R-Texas, has introduced a broader “no tax on tips” bill that includes this important fix for salons and barbershops. And last Congress, legislation providing this tax credit had nearly 60 cosponsors in the House and Senate, split evenly along party lines.

This idea is bipartisan common sense.

As NAWBO, we are proud this issue is championed by women business owners like tech entrepreneur Rep. Suzan DelBene, D-Wash., small business owner Rep. Diana Harshbarger, R-Tenn., and many other women in Congress with incredible business backgrounds. Anyone who cares about empowering women business owners and working women should support this legislation.

With a number of tax laws expiring this year, Congress will begin taking a close look at the tax code in the next few months. There will be a lively debate, and there will be much at stake. But this tax code update gives women business owners a unique opportunity for a bipartisan win at a time when politics can be extremely partisan and divisive. 

The idea of exempting tips from income taxes was a hot topic on the presidential campaign trail. This idea resonated with millions of hardworking, tipped employees across America. Extending the tax credit restaurants enjoy to the beauty industry is a proposal that would be even easier to accomplish than ending taxation on tips. The bill should absolutely be included in any tax legislation sent to the president’s desk.

As our members look to 2025 and beyond, we hope they can look forward to Congress finally leveling the playing field. We urge Congress to give tax relief to hundreds of thousands of women-owned businesses. It’s common sense.

Dr. Janis Shinkawa is the medical director and founding partner of Ohana Pet Hospital, a small animal practice in Ventura, California. She trained as an audit manager, business consultant and CPA with Ernst & Young, LLP in health care, government, hospitality and retail. NAWBO can be found on LinkedIn.