What This Bill Does
This bill changes federal tax rules for beauty service businesses. It lets employers in the beauty industry get a tax credit for part of the Social Security taxes they pay on employee tips. The bill also creates new rules for reporting tips and space rental payments in beauty service businesses.
Who It Affects
Beauty service employers and their employees who receive tips, people who rent space to beauty service providers, and the Internal Revenue Service (IRS).
Key Provisions
• Beauty service employers can now claim a tax credit for a portion of the Social Security taxes they pay on employee tips, similar to food and beverage businesses (Sec. 2(a)).
• "Beauty service" is defined to include barbering and hair care, nail care, esthetics, and body and spa treatments (Sec. 2(a)(2)).
• Employers in the beauty service industry can avoid IRS tip examinations if they establish a tip reporting education program for new and existing employees, set up monthly tip reporting procedures for employees, follow all federal tax filing requirements, and keep employee records for at least four years (Sec. 3(a)(2)).
• Any business that collects rental payments of $600 or more from two or more beauty service providers must report those payments to the IRS and provide written statements to each provider by January 31 following the payment year (Sec. 4(a) and (c)).
What Changes
If this bill becomes law, beauty service employers gain access to a tax credit previously only available to food and beverage establishments. Employers will have a safe harbor that protects them from IRS tip audits if they meet certain requirements. Businesses renting space to beauty service providers will need to report those rental payments to the IRS.
Important Definitions
• "Beauty service" means barbering and hair care, nail care, esthetics, and body and spa treatments (Sec. 2(a)(2)).
Effective Date
The tax credit changes apply to taxable years beginning after December 31, 2023 (Sec. 2(c)). The tip reporting safe harbor and space rental reporting requirements also apply to taxable years beginning after December 31, 2023 (Sec. 3(b) and 4(c)).
II
118TH CONGRESS
1ST SESSION
S. 45
To amend the Internal Revenue Code of 1986 to simplify reporting require-
ments, promote tax compliance, and reduce tip reporting compliance
burdens in the beauty service industry.
IN THE SENATE OF THE UNITED STATES
JANUARY 24 (legislative day, JANUARY 3), 2023
Mr. CARDIN (for himself and Mr. SCOTT of South Carolina) introduced the
following bill; which was read twice and referred to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 to simplify
reporting requirements, promote tax compliance, and re-
duce tip reporting compliance burdens in the beauty serv-
ice industry.
Be it enacted by the Senate and House of Representa-
1
tives of the United States of America in Congress assembled,
2
SECTION 1. SHORT TITLE.
3
This Act may be cited as the ‘‘Small Business Tax
4
Fairness and Compliance Simplification Act’’.
5
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•S 45 IS
SEC. 2. EXTENSION OF CREDIT FOR PORTION OF EM-
1
PLOYER SOCIAL SECURITY TAXES PAID WITH
2
RESPECT TO EMPLOYEE TIPS TO BEAUTY
3
SERVICE ESTABLISHMENTS.
4
(a) EXTENSION OF TIP CREDIT TO BEAUTY SERVICE
5
BUSINESS.—
6
(1) IN GENERAL.—Section 45B(b)(2) of the In-
7
ternal Revenue Code of 1986 is amended to read as
8
follows:
9
‘‘(2) APPLICATION ONLY TO CERTAIN LINES OF
10
BUSINESS.—In applying paragraph (1) there shall
11
be taken into account only tips received from cus-
12
tomers or clients in connection with the following
13
services:
14
‘‘(A) The providing, delivering, or serving
15
of food or beverages for consumption, if the tip-
16
ping of employees delivering or serving food or
17
beverages by customers is customary.
18
‘‘(B) The providing of beauty services to a
19
customer or client if the tipping of employees
20
providing such services is customary.’’.
21
(2) BEAUTY SERVICE DEFINED.—Section 45B
22
of such Code is amended by adding at the end the
23
following new subsection:
24
‘‘(e) BEAUTY SERVICE.—For purposes of this sec-
25
tion, the term ‘beauty service’ means any of the following:
26
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•S 45 IS
‘‘(1) Barbering and hair care.
1
‘‘(2) Nail care.
2
‘‘(3) Esthetics.
3
‘‘(4) Body and spa treatments.’’.
4
(b) CREDIT DETERMINED WITH RESPECT TO MIN-
5
IMUM WAGE IN EFFECT.—Section 45B(b)(1)(B) of the
6
Internal Revenue Code of 1986 is amended—
7
(1) by striking ‘‘as in effect on January 1,
8
2007, and’’; and
9
(2) by inserting ‘‘, and in the case of food or
10
beverage establishments, as in effect on January 1,
11
2007’’ after ‘‘without regard to section 3(m) of such
12
Act’’.
13
(c) EFFECTIVE DATE.—The amendments made by
14
this section shall apply to taxable years beginning after
15
December 31, 2023.
16
SEC. 3. EMPLOYER TIP REPORTING SAFE HARBOR.
17
(a) IN GENERAL.—Section 3121(q) of the Internal
18
Revenue Code of 1986 is amended—
19
(1) by striking so much as precedes ‘‘of this
20
chapter’’ and inserting the following:
21
‘‘(q) TIPS INCLUDED FOR BOTH EMPLOYEE AND
22
EMPLOYER TAXES.—
23
‘‘(1) IN GENERAL.—For purposes’’; and
24
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•S 45 IS
(2) by adding at the end the following new
1
paragraph:
2
‘‘(2) TIP PROGRAM SAFE HARBOR.—In the case
3
of an employer who employs one or more employees
4
who receive tips in the course of such employment
5
which are attributable to the performance of beauty
6
services (as such term is defined in section 45B) are
7
considered remuneration for such employment under
8
this section, no IRS tip examination with respect to
9
such employer shall be initiated (except in the case
10
of a tip examination of a current or former em-
11
ployee) if the employer—
12
‘‘(A) establishes an educational program
13
regarding applicable laws relating to proper re-
14
porting of tips received by employees for—
15
‘‘(i) new employees, which shall in-
16
clude both verbal explanation and written
17
materials, and
18
‘‘(ii) existing employees, which shall
19
be conducted quarterly,
20
‘‘(B) establishes procedures for tipped em-
21
ployees to provide monthly reporting of cash
22
and charged services and related tip income of
23
at least $20 under section 6053(a),
24
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‘‘(C) complies with all applicable Federal
1
tax law requirements applicable to employers
2
for purposes of filing returns, and collection
3
and payment of taxes imposed, with respect to
4
tip income received by employees, and
5
‘‘(D) maintains employee records related
6
to—
7
‘‘(i) contact information for such em-
8
ployees, and
9
‘‘(ii) gross receipts from any services
10
subject to tipping, and charge receipts for
11
such services, for a period of not less than
12
4 calendar years after the calendar year to
13
which the records relate.’’.
14
(b) EFFECTIVE DATE.—The amendments made by
15
this section shall apply to taxable years beginning after
16
December 31, 2023.
17
SEC. 4. INFORMATION REPORTING OF INCOME FROM
18
SPACE RENTALS IN THE BEAUTY SERVICE IN-
19
DUSTRY.
20
(a) IN GENERAL.—Subpart B of part III of sub-
21
chapter A of chapter 61 of the Internal Revenue Code of
22
1986, as amended by section 334(d) of Public Law 117–
23
328, is amended by adding at the end the following new
24
section:
25
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•S 45 IS
‘‘SEC. 6050AA. RETURNS RELATING TO INCOME FROM CER-
1
TAIN RENTALS OF SPACE IN THE BEAUTY
2
SERVICE INDUSTRY.
3
‘‘(a) REQUIREMENT
OF REPORTING.—Any person
4
who, in the course of a trade or business and for any cal-
5
endar year, receives rental payments from two or more
6
individuals providing beauty services (as defined in section
7
45B(e)) aggregating $600 or more each for the lease of
8
space to provide such services to third-party patrons shall
9
make the return described in subsection (b) with respect
10
to each person from whom such rent was so received at
11
such time as the Secretary may by regulations prescribe.
12
‘‘(b) RETURN.—A return is described in this sub-
13
section if such return—
14
‘‘(1) is in such form as the Secretary may pre-
15
scribe, and
16
‘‘(2) contains—
17
‘‘(A) the name, address, and TIN of each
18
person from whom a rental payment described
19
in subsection (a) was received during the cal-
20
endar year,
21
‘‘(B) the aggregate amount of such pay-
22
ments received by such person during such cal-
23
endar year and the date and amount of each
24
such payment, and
25
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•S 45 IS
‘‘(C) such other information as the Sec-
1
retary may require.
2
‘‘(c) STATEMENT TO BE FURNISHED TO PERSONS
3
WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—
4
‘‘(1) IN GENERAL.—Every person required to
5
make a return under subsection (a) shall furnish to
6
each person whose name is required to be set forth
7
in such return a written statement showing—
8
‘‘(A) the name, address, and phone num-
9
ber of the information contact of the person re-
10
quired to make such a return, and
11
‘‘(B) the aggregate amount of payments to
12
the person required to be shown on the return.
13
‘‘(2)
FURNISHING
OF
INFORMATION.—The
14
written statement required under paragraph (1)
15
shall be furnished to the person on or before Janu-
16
ary 31 of the year following the calendar year for
17
which the return under subsection (a) is required to
18
be made.
19
‘‘(d) REGULATIONS AND GUIDANCE.—The Secretary
20
may prescribe such regulations and other guidance as may
21
be appropriate or necessary to carry out the purpose of
22
this subsection, including rules to prevent duplicative re-
23
porting of transactions.’’.
24
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•S 45 IS
(b) CLERICAL AMENDMENT.—The table of sections
1
for subchapter A of chapter 61 of such Code is amended
2
by adding at the end the following new item:
3
‘‘Sec. 6050AA. Returns relating to income from certain rentals of space in the
beauty service industry.’’.
(c) EFFECTIVE DATE.—The amendments made by
4
this section shall apply to payments made after December
5
31, 2023.
6
SEC. 5. GAO STUDY.
7
Not later than 5 years after the date of enactment
8
of this Act, the Comptroller General shall conduct a study
9
and submit to the Committee on Small Business and En-
10
trepreneurship of the Senate and the Committee on Fi-
11
nance of the Senate a report detailing how the extension
12
of the employer social security credit under section 45B
13
of the Internal Revenue Code of 1986 (as amended by sec-
14
tion 2 of this Act) has impacted employers and employees
15
with respect to Federal income tax compliance and bene-
16
fits.
17
Æ
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