Beauty,

Barber,&

Cosmetology

Industries
The following message 

is provided as a public service

by the National Domestic

Violence Hotline and the

Internal Revenue Service:

If you or someone you

know is in an abusive

relationship, it doesn’t

have to be this way. 

Call us for help.

NATIONAL DOMESTIC

VIOLENCE HOTLINE

1-800-799-SAFE (7233)

1-800-787-3224 

(TTY for the Deaf )
Beauty and barber 

business owners have choices on how 

they can structure their business: with

workers as BOOTH RENTERS or 

as EMPLOYEES. At the same time, 

workers can choose a shop that operates

with renters or employees. This brochure

describes the different federal tax 

responsibilities for owners and workers

depending on the choice they make. 
Business Owner

As a business owner in the beauty and barber

industries, you may be responsible for withholding

and paying employment taxes (social security and

Medicare taxes) and reporting worker’s income on

Form W-2, Wage and Tax Statement, if the worker 

is not properly classified as a booth renter or as an

independent contractor. For federal tax purposes,

you need to review the factors that will help you

determine the correct classification status for 

workers in your business. These factors fall into

three categories: behavioral control (whether there

is a right to direct or control how the worker does

the work); financial control (whether there is a right

to direct or control the business part of the work);

and relationship of the parties (how the business

and the worker perceive their relationship—

employee benefits, written contracts). 

. Factors that may indicate that the worker is an

employee and not an independent contractor

include: worker is required to wear a uniform;

worker has required work schedule/hours; workers

do not handle their own sales receipts; workers 

do not make their own appointments; owner 

provides training; owner provides towels/smocks.

. Factors that may indicate the worker is an independent contractor and not an employee include:

worker has key to shop; workers makes their 

own schedule; workers buys their own products; 

workers have their own business phone number.
The IRS Tip Reporting Alternative Commitment

(TRAC) arrangement includes a commitment by

the employer to educate tipped employees of 

their statutory requirement to report tips to their

employer. This agreement also requires the owner

to provide federal tax education materials to booth

renters. Call your local IRS office for detailed information on TRAC.

Booth Renter

If you rent a booth in a salon/shop, you are “running

a small business” and the following filing responsibilities may apply:

. All income (including tips) must be reported 

on the appropriate income tax form such as

Form 1040, U.S. Individual Income Tax Return,

Schedule C.

. Social security and Medicare taxes must be 

paid using Form 1040 Schedule SE or Form 941,

Employer’s Quarterly Tax Return, as appropriate.

. All allowable expenses are deductible on the

appropriate income tax return and may include

rent, supplies, and utilities.

. Form 1099-MISC must be issued if rent paid to

non-corporate landlords is $600 or more per year.

. Form 1099-MISC or Form W-2 must be issued to

your workers.

. Estimated taxes may be required to be paid 

each quarter on Form 1040ES, Estimated Tax 

for Individuals.
Employee

As an employee in the beauty and barber 

industries, your federal tax responsibilities are:

. All taxable income must be reported on Form

1040. Taxable income includes all tips, wages,

and payments for services and commissions 

for product sales from all employers, paid 

by check or cash, that may or may not be 

included on Forms W-2 or 1099-MISC. 

. All tips of $20 or more received in one month

must be reported to your employer. Tips not

reported to the employer should be included 

on Form 4137, Social Security and Medicare Tax 

on Unreported Tip Income, and reported on 

Form 1040.

NOTE: THE PENALTY FOR FAILURE TO PAY OR 

FILE TAXES CAN BE AS HIGH AS 75% OF THE TAX 

DUE IF WILLFULLY NEGLIGENT OR FRAUDULENT. THE

PENALTY FOR NOT REPORTING TIPS TO AN EMPLOYER

IS EQUAL TO 50% OF THE SOCIAL SECURITY AND

MEDICARE TAXES DUE ON THOSE TIPS.
Independent Contractor

As an independent contractor in the beauty and

barber industries, you may have an arrangement

with a number of business owners where you 

provide services, and receive a Form 1099-MISC

showing payments you received from the owners.

The services may include: hairstylist, aesthetician,

massage therapist, and nail technician. For federal

tax purposes, remember: 

. Form 1099-MISC income, cash, check, credit

card and tip income you receive must be

reported on the appropriate income tax return

such as Form 1040 Schedule C. The income

would then be subject to self-employment tax

(social security and Medicare taxes) and reported

on Schedule SE.

. If required, you should pay estimated taxes on

Form 1040ES.

If you are not sure whether you are an employee 

or an independent contractor, call the IRS at 

1-800-829-3676 for a free copy of IRS Form SS-8,

Determination of Employee Work Status for Purposes

of Federal Employment Taxes and Income Tax

Withholding. Follow instructions on the Form for

completion and mailing. For a quick reference 

to determine your worker classification, view the 

factors noted in the Business Owner section of 

this brochure.
IRS Tax Publications & Forms

The following provide additional information on

employer and employee tax topics. You can order

free copies of IRS publications and forms through

the IRS by calling 1-800-829-3676. Also, many IRS

publications and forms are available through the

Internet at www.irs.gov.
BUSINESS TAX INFORMATION

– Publication 334, Tax Guide for Small Business

– Publication 505, Tax Withholding and Estimated

Tax (When and how to compute and file 

estimated taxes)

– Publication 583, Starting a Business and 

Keeping Records

WORKER CLASSIFICATION

INFORMATION

– Form SS-8, Determination of Employee Work

Status for Purposes of Federal Employment Taxes

and Income Tax Withholding

– Publication 15A, Employer’s Supplemental 

Tax Guide

– Publication 1779, Independent Contractor 

or Employee?

TIP INCOME REPORTING

INFORMATION

– Publication 531, Reporting Tip Income

– Publication 1244, Employee’s Daily Record of Tips

– Publication 3148, Tips on Tips, a Guide to Tip

Income Reporting

Contact your local IRS Taxpayer Education and

Communciation Office to sign up for Tip Reporting

Alternative Commitment (TRAC) by going to

www.irs.gov/localcontacts/index.html.
IRS Electronic 

Information Services

You can access IRS forms, publications, recorded

information, and one-on-one assistance through

the following vehicles:

– www.irs.gov

– IRS Tax Fax: Dial 1-703-368-9694 from a fax

machine, follow voice prompts to get IRS 

tax forms w/instructions faxed back to you.

– IRS tax publications and forms: 

Call 1-800-Tax-Form (1-800-829-3676).

– IRS TeleTax: Call 1-800-829-4477 for recorded tax

information and automated refund information.

Available in Spanish.

– Publication 1796, Federal Tax Products on 

CD-ROM: Call National Technical Information

Services (NTIS) at 1-877-233-6767.

– Publication 3207, Small Business Resource Guide

2003: Order online at www.irs.gov.

– Tax Assistance: Call the IRS at 1-800-829-1040. 

Department of the Treasury

Internal Revenue Service

www.irs.gov

Publication 3518 (Rev. 2-2004)

Catalog Number 73164X

IRS

When it comes to 

working harder for you, 

consider it done.