What Beauty Professionals Should Know About Reporting Tips on Taxes

For the first time, recent tax changes allow beauty and barber professionals to deduct up to $25,000 in qualified tips (such as cash or card tips) from their federal income taxes for tax years 2025–2028. To benefit from this deduction, you must report your tips.

Because tax laws vary based on individual circumstances, individuals are encouraged to consult a qualified tax professional to understand how these updates may apply to them.

Why Accurate Income Reporting Is Important

Your future benefits depend on reported income: Reported tips count toward Social Security and Medicare, which fund retirement, disability, and other benefits. Underreporting now can mean missing out on benefits you’ve earned later in life.

Reporting tips can improve your access to credit, loans, and housing: Showing your full income—including tips—on your tax return can help you qualify for credit cards, larger loans, better interest rates, or approvals you might otherwise miss. This can matter when buying a car, purchasing a home, or investing in a salon.

Reporting tips is the law: While the special deduction is new, tips from beauty services have historically been considered taxable income under U.S. law. Reporting your tips accurately helps you avoid issues such as audits, fines, or penalties.

Compliance and peace of mind: The IRS pays close attention to tip-heavy industries like ours. If tips are not reported, it can raise a red flag. Accurate reporting helps reduce the risk of audits, penalties, or unexpected tax issues.

State and payroll taxes may still apply: Even if federal income tax does not apply to some or all tips, state taxes and payroll taxes—such as Social Security and Medicare—often still do. Reporting keeps you compliant and protects you from surprises later.

Supporting long-term industry success: Accurate income reporting supports both individual financial stability and the broader representation of earnings within the beauty profession. Federal agencies use aggregated graduate earnings data as part of accountability evaluations for career education programs. Complete and accurate reporting helps ensure that earnings data more fully reflects the success of licensed professionals in the workforce.

How to Report Tips for Tax Purposes: SALON EMPLOYEES

• Use IRS Form 4070 (Employee’s Report of Tips to Employer) or your salon’s electronic reporting system. Include your name, address, Social Security number, employer’s name, the period covered, and total tips.
• Your employer will include reported tips on your Form W-2 (Box 1 for wages, Box 7 for Social Security tips, and Box 8 for allocated tips, if applicable).
• If some tips were not reported to your employer (such as small cash tips), use IRS Form 4137 (Social Security and Medicare Tax on Unreported Tip Income) and attach it to your Form 1040.

How to Report Tips: SELF-EMPLOYED (booth renters or independents)

• Report all tip income on Schedule C, which is filed with your Form 1040 tax return.
• This includes tips received through apps like Venmo or PayPal, which may also be reported to the IRS on a 1099-K.

This message is for general information only and is not tax advice. Tax rules can vary based on individual situations, including income level or a high-earning spouse. If you have questions or are unsure what applies to you, it’s best to speak with a qualified tax professional. 

Additional Financial Literacy Resource

For more context on why reporting income matters, Qnity for Schools released a short video from its MONEY EDU financial literacy curriculum. The video explains the long-term impact of reporting all income, including tips, in a clear and practical way.

Important Disclaimer

This article is provided for general informational purposes only and does not constitute tax, financial, or legal advice. Tax laws and reporting requirements vary based on individual circumstances. Graduates are encouraged to consult a qualified tax professional regarding their specific situation.

At Paul Mitchell Schools, we are proud of the careers our graduates build every day. Financial literacy and accurate income reporting are important parts of supporting your long-term professional success.