Small Business Tax Fairness and Compliance Simplification Act

This bill amends the Internal Revenue Code to simplify tax reporting and reduce compliance burdens for beauty service businesses, particularly regarding tip reporting and space rental income. It extends the employer Social Security tax credit for employee tips to beauty service establishments, creates a safe harbor from IRS tip examinations for beauty service employers that meet certain education and reporting requirements, and requires information reporting of rental income from space leased to beauty service providers.

Sec. 2, Extension of tip credit to beauty service businesses: The bill expands the existing employer Social Security tax credit for tips to include tips received for beauty services, such as barbering, hair care, nail care, esthetics, and body/spa treatments. The credit applies only if the aggregate tips for beauty services exceed 15% of the taxpayer's gross receipts from those services. It also updates the credit calculation to use the current minimum wage for beauty service establishments, while keeping the 2007 minimum wage for food and beverage establishments. These changes apply to taxable years beginning after December 31, 2024.

Sec. 3, Employer tip reporting safe harbor: For beauty service employers, no IRS tip examination will be initiated (except for individual employee examinations) if the employer establishes a tip education program for new and existing employees, sets up monthly tip reporting procedures for employees, complies with all federal tax filing and payment requirements for tip income, and maintains employee contact and gross receipts records for at least four years. This safe harbor applies to taxable years beginning after December 31, 2025.

Sec. 4, Information reporting of income from space rentals in the beauty service industry: Any business that receives $600 or more in annual rental payments from two or more individuals leasing space to provide beauty services must file an information return with the IRS. The return must include the renter's name, address, TIN, and the aggregate amount and dates of payments. A written statement with the same aggregate amount and a contact phone number must be provided to each renter by January 31 of the following year. The IRS may issue regulations to prevent duplicate reporting. This applies to payments made after December 31, 2025.