H.R. 2603 — Small Business Tax Fairness and Compliance Simplification Act

This section expands the employer FICA tax credit for employee cash tips under IRC §45B to include beauty services—defined as barbering and hair care, nail care, esthetics, and body and spa treatments—provided tipping is customary and tips from such services exceed 15% of gross receipts for those services. It further modifies the minimum wage rate used in the credit calculation to the current federal rate under the Fair Labor Standards Act (from the rate as of January 1, 2007) for beauty services while retaining the 2007 rate for food and beverage establishments. The changes apply to taxable years beginning after December 31, 2024.

This section establishes a safe harbor from IRS-initiated tip examinations for employers of employees receiving tips attributable to beauty services (as defined in section 45B, i.e., services such as barbering, hair care, skin care, and manicures). To qualify, the employer must (1) implement an educational program on tip reporting laws, including verbal and written training for new employees and quarterly sessions for existing employees; (2) establish procedures for tipped employees to report monthly cash and charged services with at least $20 in tip income under IRC §6053(a); (3) comply with all federal tax filing, collection, and payment requirements for tip income; and (4) retain related employee records (i.e., contact information, gross receipts from tipping services, and charge receipts) for at least four calendar years. The amendments apply to taxable years beginning after December 31, 2025.

This section establishes a new information reporting requirement under IRC §6050Z for any person receiving, in the course of a trade or business, rental payments aggregating $600 or more in a calendar year from two or more individuals providing beauty services (as defined in IRC §45B(e)) for space leased to serve third-party patrons. Required returns, filed as prescribed by the Secretary, must include each renter's name, address, and TIN, along with aggregate payments, payment dates and amounts, and other required information; persons required to file must furnish statements to renters by January 31 of the following year, with the provision applying to payments made after December 31, 2025.