The Limited, But Real Impact Of Trump’s Tips Tax Break For Hairstylists And Aestheticians

Salon and spa employees will soon get a bit of extra income, courtesy of the federal government.

Taking effect with the current tax year, service workers will be able to deduct up to $25,000 annually in tips from their federal income taxes under a no tax on tips provision of the so-called One Big Beautiful Bill Act, a sweeping legislative budget package signed into law by President Donald Trump on July 4 after passing through Congress. Workers making $150,000 a year or above individually or $300,000 or above as part of a joint return aren’t eligible for the deduction. 

Tipped employees must still pay into the 7.65% combined payroll taxes that fund Social Security and Medicare under the Federal Insurance Contributions Act (FICA) requiring employers to withhold taxes from workers’ income, including tips. According to the White House Council of Economic Advisers, tipped workers will save around $1,700 a year on average.

Higher-wage workers stand to gain more than lower-wage workers receiving fewer tips. Also, the potential benefits of the tax break could be wiped out if workers lose healthcare coverage or have their health insurance premiums skyrocket due to cuts made in the budget package to Medicaid and the Affordable Care Act. The tips deduction is set to lapse after 2028.

In addition, Congress extended the availability of the 45B FICA tip tax credit to employers within the beauty service industry allowing business owners to receive a dollar-for-dollar tax credit for their portion of payroll taxes. The credit was first granted to restaurant owners in 1993. 

“As with any change in tax policy, the devil is in the details.”

The United States Bureau of Labor Statistics reports there are nearly 650,000 licensed cosmetologists, hairdressers and hairstylists in the country. Associated Skin Care Professionals (ASCP) figures there are 183,000 licensed aestheticians in the U.S. Spa and salon software company GlossGenius estimates hairstylists make on average $25,000 to $50,000 per year and aestheticians make $30,000 to $65,000 on average. Tips of 15% to 20% on spa and salon services are typical. The booking platform StyleSeat approximates the average salon service price runs from $10 to $150 on the low end and $200 to $1,000 on the high end. 

The Professional Beauty Association, a beauty industry trade organization, estimates that the FICA credit could return in excess of $2.2 billion to the beauty industry over 10 years, enabling employers to reinvest in education, jobs and wages. “This isn’t just a tax credit—it’s a statement,” said Leslie Perry, executive director of the Professional Beauty Association, in a press release. “It says our industry matters. Beauty professionals are job creators, community builders and economic drivers. Finally, the professional beauty industry has achieved tax fairness in our U.S. tax code.”

Beauty service professionals largely concur with the PBA and consider the new tipping policy and FICA credit as wins, particularly when attracting and retaining talent has become a challenge. “New professionals often enter with passion but leave due to burnout and financial instability,” says Abby Haliti, hairstylist and founder of Abby Haliti Color Studio in New York City. “Knowing that tips can now stretch further might encourage younger talent to see this work as a viable long-term career. It also helps salons elevate standards by being able to attract better-qualified professionals who expect fair compensation for their service.”

Tag Ceder, a spa consultant and CEO of consultancy The Well Labs, doesn’t foresee the new tip tax break drawing in many, if any, new employees to the beauty service industry on its own. However, it could boost morale as stylists, aestheticians and massage therapists book fewer appointments and confront client rosters shrinking since the pandemic. She says, “People are cutting back where they can, getting massages less or spacing out treatments.” 

While the legislation aims to benefit service workers relying on tips for income, it does little to ease the financial burden on business owners, argues Erica De Los Santos, founder of nail salon Nail’d It Beauty Lounge in Kenvil, N.J. The FICA tax credit doesn’t sweeten the pill much either. According to salon software company SalonBiz, salon operating costs on average range between $30,000 and $40,000 a month. 

“The actual dollar amount tends to be relatively small when broken down. For example, if an employee reports $100 in tips, the employer saves just $7.65 on that amount: 6.2% for Social Security and 1.45% for Medicare,” she says. “When payroll is one of the largest expenses a business has, this credit, while appreciated, doesn’t move the needle significantly for most salons.”

Tipping is crucial for employees in the salon and spa industries, where job security and robust compensation structures are often lacking. Employment models vary between being commission-based, where employees earn a fixed percentage of service costs plus gratuity, and offering hourly wages. Depending on the state, hourly wages generally land between $15 to $25 for stylists. On top of the hourly wages, they earn a percentage of any retail sales they make and gratuity. “It’s pretty tip heavy,” says Ceder. “So, if somebody just skates out of there and doesn’t pay, it does affect them.” 

Although tipping fatigue is a concern as tips extend across industries that didn’t rely on them previously, beauty service professionals say that customers will still tip generously for services they deem worthy. Cash tips, which employees could pocket without declaring as income, are becoming increasingly less prevalent as customers gravitate toward credit cards or digital payment platforms like Venmo, Zelle or Apple Pay.

Stylists and nail technicians aren’t blind to the pressures that the new tax law could inflict on the industry. Haliti mentions issues around reporting and how owners implement the law into their businesses. “If not handled transparently, it could create confusion around what qualifies as a ‘tip’ and how it should be reported,” she says. “Every team member may have a different employment classification—hourly, commission, contractor—which affects how tips are handled. As with any change in tax policy, the devil is in the details.”

Communication between employers and employees could be another sticking point. De Los Santos notes that employees may incorrectly believe that they’ll no longer be taxed on their tips upfront when, in reality, they’ll receive the credit later only if they file properly with the government themselves. She emphasizes, “Without proper communication, this could lead to frustration or even mistrust between staff and management.” 

Tony Tjan, CEO of MiniLuxe, a franchise nail salon business that operates 23 locations nationwide and employs about 500 people, says some beauty service businesses may start paying their employees less if there is more after-tax pay promised to them. He’s concerned the new tax law will disincentivize employees from working more hours. 

“In some cases, it may cause people to work less, not because they necessarily want to. For many workers in a tip-based environment, flexibility of scheduling is key because of other needs such as care-giving responsibilities,” says Tjan, who notes that over half of MiniLuxe’s nail designers qualify for equity options in the company. “Overall, we’re optimistic this [bill] will encourage more salons to rethink outdated pay models so that professionals can thrive with or without tips.”