H.R. 2603: Small Business Tax Fairness and Compliance Simplification Act

This bill, titled the Small Business Tax Fairness and Compliance Simplification Act, aims to amend the Internal Revenue Code to simplify tax reporting requirements and reduce compliance burdens, particularly for businesses in the beauty service industry. Below are the key provisions of the bill:

Extension of Tip Credit to Beauty Services

The bill extends the existing employer social security tip credit to establishments that provide beauty services. This means that :

• Employers in the beauty service sector can take advantage of tax credits for tips received by their employees.
• The bill defines beauty services to include categories like barbering and hair care, nail care, esthetics, and body/spa treatments.
• Employers must report that tips constitute more than 15% of the gross receipts from beauty services to qualify for the tax credits.

Employer Tip Reporting Safe Harbor

To protect beauty service employers from excessive IRS scrutiny regarding tip reporting, the bill establishes a safe harbor provision. Key points include:

• If employers implement educational programs on proper tip reporting for both new and existing employees, they can avoid IRS tip examinations.
• Employers must also establish reporting procedures for tip income received by employees and maintain accurate records.

Information Reporting for Rental Income in the Beauty Industry

The bill requires any individual or entity receiving rental payments from beauty service providers to report this income. Specifically:

• If they receive $600 or more from two or more beauty service providers in a year, they must report this income to the IRS.
• The report must include details like the rental amounts and information about the service providers.

Effective Dates

The amendments proposed by this bill will take effect as follows:

• The provisions related to the tip credit will apply to taxable years starting after December 31, 2024.
• The safe harbor provisions will take effect for taxable years beginning after December 31, 2025.
• New reporting requirements for rental income will apply to payments made after December 31, 2025.

Relevant Companies

• None found