Cosmetology

Learning The Art of Doing Business

Federal Taxation Curriculum 

for Cosmetology Students

Instructor’s Guide

Developed by the Internal Revenue Service

Small Business/Self-Employed Division Taxpayer Education & Communication 

Cosmetology School Curriculum INSTRUCTOR’S GUIDE

ii

Training Goals and Principles

The training program has been structured to meet the needs of the current environment. Our primary goal is to give the student

a better understanding of the tax responsibilities related to their chosen profession. This diverse industry covers a multitude of

occupations such as barber, hair stylist, manicurist, masseuse, esthetician, and more.

To accomplish our goal, we have designed the chapters contained in this document to provide a basic knowledge of tax

guidelines. The material is organized for maximum flexibility for use in a variety of educational settings and instructional

situations. 

In our continuing efforts to promote equality of opportunity for all, we ask that when conveying the materials we have provided

that you, as the instructor, exercise care in the manner in which you communicate. We caution you not to exclude any one

group or individual by what you do or say. As an instructor, you should avoid practices and remarks that may cause personal

offense to students based on their:

• Sexual orientation

• Physical handicap

• Racial or ethnic origin

• Religious affiliation (or lack thereof)

• Age

Course Design

This course is designed to provide students with an overview of tax responsibilities. It will inform and enhance awareness of the

guidelines for employees, self-employed, and employers. This course does not provide the students with information on completing

a tax return. The students will have an overall understanding of the tax requirements for the Cosmetology Industry.

The exercises in the course material are designed to lead students to:

• Think about concepts

• Support facts

• Use reference materials

Any additional exercises should follow this pattern.

The instructor guide is divided into two columns: "Content of Lesson" and "Notes to Instructor." The "Content of Lesson" segment is

designed to provide guidance on the information contained in each chapter. The "Notes to Instructor" segment offers suggestions to

assist the instructor in teaching each chapter. 

Additional exercises have been provided to further enhance understanding of the overall curriculum. These exercises may be

administered during class or in independent study sessions as time permits.

INSTRUCTOR’S GUIDE

Content of Lesson NOTES TO INSTRUCTOR

INSTRUCTOR’S GUIDE 1

Introduction

This curriculum is designed to educate students

pursuing a career in the Cosmetology Industry. It

consists of an overview of federal income and

employment tax responsibilities.

What benefits do I receive when I file a

correct tax return?

There are numerous reasons to file a correct tax

return; however, we will focus on five:

• Increases chances of getting a loan

• Determines the amount of Social Security paid

to your account

• Unemployment compensation is based on the

amount of wages and tips reported on the

federal tax return for employees

• Workers’ compensation is also based on the

amount of wages and tips reported

• Other benefits include life insurance, disability

insurance, and retirement plans that are

affected by the reported wages and tips

Reading Assignment: Have students read from "How does

filing a correct tax return increase my chances of getting a loan?"

to "What is my ‘worker classification’?"

Ask the students to give additional reasons for filing correct

returns.
Content of Lesson NOTES TO INSTRUCTOR

What is my "worker classification"?

Choosing a career in the Cosmetology Industry

offers a variety of employment opportunities. A

person can be an employee, self-employed, or

both.

An employee means to be employed by someone

else.

A self-employed person is someone who does not

have an employer. They work for themselves. Reading Assignment: Have students read from "What is my

‘worker classification’?" to "Am I an employee?"

Discuss the different types of worker classification categories.

Ask these questions:

Question: What are the different worker classifications?

Answer: 1. Employee

2. Salon owner

3. Booth renters

4. Independent Contractors

Question: A person who is a booth renter, could they be

self-employed?

Answer: Yes, if they are not employees, then they are 

considered self-employed.

Question: Can the owner of a salon be an employee of

their business? 

Answer: No, generally salon owners are self-employed.

2 INSTRUCTOR’S GUIDE
Content of Lesson NOTES TO INSTRUCTOR

Am I an employee?

Advise students that Publication 1779, Independent

Contractor or Employee, is available for more

information on this topic.

What is income and how do I report it?

Income is wages, salaries, tips, fees, commissions,

rent, and sales. Income can be paid by cash,

check, credit card or bartering. All income is

taxable unless the Internal Revenue Code

specifically excludes the income.

Discuss the factors that determine the classification.

Reading Assignment: Have students read from "Am I an

employee?" to "What is income and how do I report it?"

Review the examples for each category.

Reading Assignment: Have students read from "What is

income and how do I report it? " to "Why are my tips considered

income?"

Review the table of income.

Ask these questions:

Determine if the income has been received:

Question: A booth renter pays the salon owner rent. Was

income received by the salon owner?

Answer: Yes

Question: A client gives an extra $15 above the cost of

the service. Was income earned?

Answer: Yes

INSTRUCTOR’S GUIDE 3
Content of Lesson NOTES TO INSTRUCTOR

Why are my tips considered income?

Tip income is taxable income that is more than the

amount charged for services rendered.

Tips can be paid by cash, check, charge, or by

non-cash (i.e., tickets to sporting events). All tips

are subject to income tax.

Tip income is reported differently for students,

employees, and self-employed persons. 

Question: A friend borrows $30 and comes to

your salon to pay you the amount they

borrowed. Is the amount borrowed income to

you? 

Answer: No, the amount borrowed is not income

because it was not paid to an employee or for

services performed.

Reading Assignment: Have students read from "Why are my

tips considered income?" to "What is a business expense and how

do I report it?"

Discuss with the students the requirements for reporting tip income

to employer.

Provide students with Publication 1244, Employee’s Daily Record

of Tips and Report to Employer.

Review the Form 4070A, Employee’s Daily Report of Tips.

Review the chart that lists common types of income.

4 INSTRUCTOR’S GUIDE
Content of Lesson NOTES TO INSTRUCTOR

What is a business expense and where do I

report it?

Business expense is an amount spent to operate

the business. The expense must be ordinary and

necessary to be deductible.

What do I need to know about keeping

records?

Keeping good records will help in preparing an

income tax return and for establishing a budget.

Have the students answer the following questions:

Question: If I am a student and receive a tip of $30, do I

need to report this to my employer?

Answer: No, a student is not an employee of the school; 

therefore, the $30 is income and is reported on

Form 1040, as other income.

Question: I own a salon and perform services in the salon,

where do I report tip income received 

from clients?

Answer: Report the income on Schedule C because the 

owner is considered self-employed.

Reading Assignment: Have students read from "What is a

business expense and how do I report it?" to "What do I need to

know about keeping records?" 

INSTRUCTOR’S GUIDE 5
Content of Lesson NOTES TO INSTRUCTOR

There are five reasons to keep good records:

1. To monitor the success of the business

2. To properly identify the sources of income

3. To properly identify deductible expenses

4. To accurately prepare the tax return

5. To support income, expenses, and credits

reported on the tax return

What are the consequences of filing an 

incorrect tax return?

The tax law requires that federal tax returns are to

be filed by specific dates and the related taxes are

to be paid by specific dates. If the required returns

are not filed and/or the appropriate taxes are not

paid, the IRS may assess the person with one or

more penalties and interest, as appropriate.

What are my tax responsibilities?

The tax system is a pay-as-you-go system. 

Reading Assignment: Have students read from "What do I

need to know about keeping records?" to "What are the

consequences of filing an incorrect tax return?"

Reading Assignment: Have students read from "What are

the consequences of filing an incorrect tax return?" to "What are

my tax responsibilities?"

6 INSTRUCTOR’S GUIDE
Content of Lesson NOTES TO INSTRUCTOR

The worker classification will determine the taxes

that need to be filed and when those taxes must be

paid.

What are my federal tax responsibilities as

an employee?

Employees will have income and Social Security

taxes withheld from their pay. They will receive a

Form W-2 from the employer showing the amount

of federal taxes withheld and paid throughout the

year. If an employee does not report all of the tips

they received to the employer, then the employee

will be required to pay additional tax. In addition,

a penalty may be assessed if the employee

underpays the required tax.

What are my personal federal tax 

responsibilities if I am self-employed?

Self-employed persons are responsible for paying

their own taxes. They will pay self-employment tax,

which is similar to Social Security and Medicare

Taxes, but a different rate. 

What are my federal tax responsibilities if I

am an employer?

An employer is responsible for employment taxes.

Employment taxes consist of employee’s federal

income tax; Social Security and Medicare Taxes,

the employer’s share of Social Security and

Medicare Taxes, and possibly, federal

unemployment tax.

For the self-employed, discuss the Form 1099-MISC,

Miscellaneous Income

INSTRUCTOR’S GUIDE 7
Content of Lesson NOTES TO INSTRUCTOR

The employer is required to provide employees

with Form W-2. Form 1099-MISC is required if

the employer paid $600 or more to any person

(other than a corporation) who is not an employee.

What are tax credits?

There are several tax credits a person can take on

their tax return that will reduce the amount of tax

owed. This section will discuss one of the tax

credits, the Earned Income Tax Credit (EITC).

To be eligible to receive EITC, a person must meet

several qualifications.

What are education credits? 

There are two kinds of education credits students

may be entitled to take to reduce the amount of

tax owed.

Ask the following questions:

Question: An employee’s income received for the year

should be reported by the employer on which

form?

Answer: Form W-2

Question: Would a self-employed person receive a Form

W-2 for services performed in their salon?

Answer: No, Form W-2s are only issued to employees.

Reading Assignment: Have students read from "What are

tax credits?" to "What are education credits?"

Review the qualifications for the Earned Income Tax Credit.

Review the rules for the Hope Credit and the Lifetime Learning

Credit.

8 INSTRUCTOR’S GUIDE
Content of Lesson NOTES TO INSTRUCTOR

Students may be eligible for both tax credits;

however, they can only claim one.

Refer the students to Publication 970, Tax Benefits

for Higher Education.

What is e-filing?

A person may file their federal tax return

electronically. e-filing is accurate, secure, and

paperless. Individuals, self-employed, employers,

partnerships, and tax practitioners can use e-file. 

What is EFTPS?

The Electronic Federal Tax Payment System (EFTPS)

allows individuals, self-employed persons,

employers, and corporations to pay their federal

taxes electronically. Any individual taxpayer

making more than one tax payment a year can use

EFTPS. Any business taxpayer can use EFTPS for

all taxes.

Reading Assignment: Have students read from "What are

education credits?" to "What is e-filing?"

Reading Assignment: Have students read from "What is 

e-filing?" to "What is EFTPS?"

Advise the students of the tax forms that can be used to e-file.

Reading Assignment: Have students read from "What is

EFTPS?" to "Test Your Knowledge."

Review the benefits of using EFTPS.

INSTRUCTOR’S GUIDE 9
Content of Lesson NOTES TO INSTRUCTOR

Related Products and Services

Test Your Knowledge

Review the list of products and services.

Have students complete additional questions.

Review and discuss answers.

10 INSTRUCTOR’S GUIDE
INSTRUCTOR’S GUIDE 11

Additional Exercises:

1. Linda decided to open Your Special Beauty Salon. She hired Kathy, Lisa, and Danny to work in her salon.

Kathy and Lisa recently graduated from Cosmetology School. Linda provided them with a contract that

stated the hours they would work and information on health insurance and tip reporting. Danny rented a

booth from Linda. He buys his own supplies and sets his own hours and fees. Determine if Kathy, Lisa, or

Danny are employees or self-employed.

Answer: Kathy _______________

Lisa _______________

Danny _______________

2. Determine who must report tip income to their employer.

_____ a. Marcus provided service and received $75 of which $5 was tip income for the month of June.

_____ b. Wilma earned $22 in tips last week.

_____ c. Jessica, a student at the National Cosmetology School, received $20 in tips from a client.

_____ d. John worked four days and received tips of $150

3. Circle the best answer. When should an employee report tip income to the employer?

a. 1st of every month

b. 10th of every month

c. 15th of the following month after the tips are earned

d. 10th of the following month after the tips are earned 

4. Circle the best answer. Determine which of the following are business expenses. 

a. A $300 neon sign with the business’ name on it.

b. Electric bills for the business.

c. Purchased laundry soap to be used to wash children’s clothes.

d. Shampoos and hair curlers.

e. Trade association dues.
12 INSTRUCTOR’S GUIDE

5. Match the following:

____ Form W-2 a. Used to report income and expenses from self-employment.

____ Form W-4 b. Used to report $600 or more to any person (not a corporation) 

for services rendered.

____ Form 2106 c. Used to report employees wages.

____ Schedule C d. Used to report employee business expense. 

____ Form 4070A e. Used to determine the amount of income tax to be withheld.

____ Form 1099-MISC f. Used to report employee’s daily tips.

6. ____True or False. A 20 year-old student who does not have children can qualify for the 

Earned Income Tax Credit.

7. What are the two kinds of education credits that a person may take on their tax return?

____ a. School and Learning Credit

____ b. Higher Education and Lifetime Credit

____ c. Hope and Scholarship Credit

____ d. Hope and Lifetime Learning Credit

8. Alex is a full-time student at Dean Beauty College. Alex paid for his tuition, books, and lab fees that cost

$3,200. He cannot be claimed on his parents’ return. This is his first year of school, and he has met all the

requirements. Can Alex claim the Hope Credit?

____ Yes ____ No

9. List at least three types of people who can file electronically.

_____________________

_____________________

_____________________

10. Can EFTPS be used to file a tax return?

____ Yes ____ No
INSTRUCTOR’S GUIDE 13

Answers to Additional Questions

1. Kathy employee

Lisa employee

Danny self-employed

2. b, d

3. d

4. a, b, d, e

5. c Form W-2

e Form W-4

d Form 2106

a Schedule C

f Form 4070A 

b Form 1099-MISC

6. False, a person must be at least 25 years old to be eligible.

7. d

8. Yes

9. Individual taxpayers

Sole proprietors 

Employers 

Partnerships 

Tax practitioners 

10. No. EFTPS is used to make payments and not for filing a return.


Publication 4143A (Rev. 11-2003)

Catalog Number 35650Y