Salon owners are responsible for reporting tip income on behalf of their employees. I realize this means that you will have to match FICA on money that did not contribute to your company.
Regardless of your opinion on this point, the IRS considers tips to be taxable income, which is subject to federal income tax. Tips that your employees receive directly from customers are generally subject to withholding as well.
The IRS mandates that tips be reported to you by the tenth day of the month following the month in which the tips were received. Tips are to include amounts that you remitted to your employees from credit card and debit card receipts, as well as tips that customers gave directly to your employees. If you want more information on how to appropriately report tips, IRS Publication 4902 provides an overview based on the Cosmetology and Barber industry.
Summit Salon Business Center (SSBC) has a deep personal commitment to keeping the independent salon thriving and profitable. SSBC’s definition of profit includes paying all required state and federal taxes. If your salon company can only be profitable by ignoring your tax liability, it’s time to reevaluate your business model. There is a way to comply with all state and federal laws while simultaneously enjoying the benefits of owning a profitable salon company.
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- By Summit Salon Business Center – www.SummitSalon.com