S 1998119th CongressIn Committee

Small Business Tax Fairness and Compliance Simplification Act

Introduced: Jun 9, 2025

Economy & Taxes

Standard Summary

Comprehensive overview in 1-2 paragraphs

This bill, titled the Small Business Tax Fairness and Compliance Simplification Act, would largely expand and modify how tipping and space rental income are treated for tax purposes in the beauty service industry, and it would introduce a new information reporting requirement. Key changes include extending the employer tip credit under Internal Revenue Code section 45B to beauty service businesses (such as barbering, hair care, nail care, esthetics, and body/spa treatments) if tipping is customary and tips exceed a 15% threshold of gross receipts for those services. The bill also adds a safe harbor to reduce IRS tip examinations for employers with beauty-service tip income that implement specified reporting and recordkeeping procedures. Additionally, it creates a new information reporting regime (6050AA) for income from space rentals in the beauty service industry where space is rented to two or more beauty providers and payments reach $600 or more in a year. Effective dates push these changes to apply to tax years beginning after 2024 (tip credit and wage references) and after 2025 for the safe harbor and new rental income reporting. In short, the bill aims to lower tax compliance burdens and improve compliance by extending certain tip-related tax benefits to beauty services, while also imposing new reporting requirements on space rental arrangements within beauty businesses.

Key Points

1Extension of tip credit to beauty service businesses:
2- The tip credit under section 45B is extended to beauty services when tips are customary and certain thresholds are met.
3- Beauty services are defined to include barbering and hair care, nail care, esthetics, and body/spa treatments.
4- A specific threshold requires that tips accounted for by the employer for beauty services exceed 15% of the gross receipts for those services in the year to qualify.
5Clarifications to the tip credit calculation and minimum wage reference:
6- The bill adjusts how the minimum wage is used in calculating the tip credit, with a note that for food/beverage establishments the wage reference remains as of January 1, 2007, and adds similar treatment for beauty services.
7Employer tip reporting safe harbor (to reduce IRS examinations):
8- Employers with tip-earning beauty-service employees would be eligible for a safe harbor from tip examinations if they:
9- Provide an educational program on tip reporting for new and existing employees.
10- Establish monthly reporting procedures for cash and charged services and related tip income (minimum of $20) under current tax rules.
11- Comply with all applicable federal tax filing, collection, and payment requirements related to tip income.
12- Maintain employee records (contact info and gross receipts/charged receipts) for at least four years.
13- Effective for taxable years beginning after December 31, 2025.
14New information reporting for space rentals in the beauty industry (6050AA):
15- A new reporting requirement for those who receive rental payments from two or more beauty-service providers aggregating $600 or more in a calendar year for leased space to provide beauty services to third-party patrons.
16- The report must include the payer’s identifying information, the amounts paid, and other required data, and the payer must furnish statements to each payee by January 31 of the following year.
17- Regulations and guidance to prevent duplicative reporting are allowed.
18- Effective for payments made after December 31, 2025.

Impact Areas

Primary group/area affected- Beauty service establishments (salons, barbershops, spas) and their employees, particularly those who receive tips.- Employers who employ beauty-service workers and currently rely on tip income to support wages.Secondary group/area affected- Individuals and businesses renting space to beauty service providers (e.g., salon landlords, co-working salon spaces, or individual practitioners renting chairs/spaces).Additional impacts- Tax compliance costs and administrative burden: While the safe harbor could reduce IRS examinations for compliant employers, the new 6050AA space-rental reporting adds a fresh reporting obligation for landlords and potential contractors.- Wage and tip reporting dynamics: Extending the tip credit to beauty services could affect wage structures, tip pooling, and payroll tax planning for salons.- Small business considerations: The bill’s effective dates imply a transition period; some provisions (tip credit and wage references) start with tax years after 2024, while the safe harbor and space-rental reporting begin after 2025. This gives affected businesses time to adjust systems and training.Tip credit: A tax provision that allows employers to count tips received by employees toward the employer’s share of payroll taxes, effectively reducing the amount the employer must pay in Social Security taxes on tipped employees.45B: The section of the Internal Revenue Code that governs the tip credit for tips received in the course of employment.6053(a): A reference to the reporting requirements for tipping income; the bill requires monthly tip reporting of at least $20 for compliance.6050AA: A new IRS information-reporting provision proposed by the bill for rental income from space leased to beauty providers, similar in spirit to other information-reporting regimes but targeted at beauty industry space rentals.

Generated by gpt-5-nano on Oct 7, 2025