The 2025 U.S. tax overhaul: Key changes for the beauty and wellness industry
What every salon, spa, and wellness professional needs to know about the new U.S. tax bill.
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Salon and spa tax bill changes at a glance:
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- No taxes on tips for select beauty and wellness employees, which may boost pay and create more employee awareness about tax classification.
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- FICA tip credit for owners, bringing much-needed financial relief to the industry.
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- Cuts to Medicaid and SNAP may put part-time and non-tipped employees in a tough spot.
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- Additional cuts and benefits can impact your finances, so it is best to speak with your tax advisor ASAP.
The beauty and wellness industry thrives on a delicate balance of artistry, personal care, and operational overhead. With the introduction of the new federal tax bill (AKA One Big Beautiful Bill Act), salon owners, spa operators, independent estheticians, and other wellness professionals may soon face a shifting financial landscape.
From healthcare to tipping policies, green energy incentives, and income thresholds, the bill carries provisions that could significantly affect how businesses operate and how employees are supported.
Let's break down the major sections of the tax bill that could impact beauty and wellness businesses — and the steps salon and spa professionals should be taking now.
Section 70201: A win for tipped beauty and wellness professionals
You work hard for your tips, and now you get to keep more of them. Section 70201 of the new tax bill brings a game-changing update for the beauty and wellness industry — employee tips may now be tax-free up to $25,000 per year starting in 2025.
This is a substantial victory for many service providers such as hairstylists, barbers, nail technicians, and massage therapists who rely heavily on tips as part of their income. With 1 in 5 stylists reporting that tips comprise 20% of their income, this presents an opportunity for a huge payment boost.
However, the new rule comes with specific criteria and limitations that professionals should understand clearly, including:
- W-2 employees only: To benefit from this exclusion, you must be classified as an employee. Independent contractors (1099), sole proprietors, and business owners working behind the chair are not eligible.
- Traditionally tipped roles: Not all beauty and wellness occupations will automatically qualify. Only jobs where tipping is "customary and regular" will be eligible. An official list of approved roles will be published by the Secretary of the Treasury on October 2, 2025. While classically tipped roles (such as beauty professionals, nail artists, barbers, tattoo artists, and massage therapists) are expected to be included, eligibility for medspa professionals remains uncertain.
- Income criteria: If your adjusted gross income (AGI) exceeds $150,000 (or $300,000 for joint filers), your tips will remain taxable. This cap is in place to ensure the benefit is targeted to lower-income earners.
While some gray areas remain, Section 70201 represents a landmark shift in how tipped income is treated for beauty and wellness professionals. For many, this could mean thousands of dollars in annual tax savings, increased take-home pay, and more financial stability, all while elevating the perceived value of service work in this industry.
Related reading: 2025 Survey: The state of tipping in salons
Source: The 2025 Beauty and Wellness Benchmark Report, Zenoti.
Expanded FICA tip credit for beauty and wellness businesses
While tax-free tips may only apply to employees, beauty and wellness businesses are also seeing major tax benefits under the new law. For the first time, salons, spas, barbershops, nail studios, and similar establishments can now claim the Section 45B FICA Tip Tax Credit (AKA a payroll benefit that has been exclusive to the restaurant industry).
This credit enables employers to recover the employer-paid share of FICA taxes (Social Security and Medicare) on reported employee tips, thereby significantly reducing payroll tax liabilities for businesses where tipping is customary. To qualify, the salon, spa, or barbershop must meet the following criteria:
- Tip income from beauty or wellness services must exceed 15% of gross receipts for those services in a calendar year.
- The business must accurately track and report all tips received by W-2 employees.
- Services must fall under qualifying beauty and wellness occupations, as defined by updated IRS rules under the Small Business Tax Fairness and Compliance Simplification Act. As mentioned above, the list of qualifying occupations will be released on October 2, 2025.
For beauty and wellness business owners, Section 45B opens the door to real savings and reinvestment opportunities. By embracing proper tip-tracking practices and meeting the qualification thresholds, businesses can take full advantage of this long-overdue tax relief.
SNAP benefit changes: Indirect but real
While not directly tied to employers, changes to SNAP benefits (formerly known as food stamps) may affect employee financial stability. As benefits shrink or become harder to qualify for, employees may look to employers for increased wages or additional support.
Although this may seem too indirect to include in operational planning, owners should prepare for potential retention or morale challenges, especially among entry-level, part-time, and non-tipped staff.
Goodbye, Green: Elimination of clean-energy tax incentives
Another impactful change for business owners is the elimination of green-energy tax credits and deductions. Previously, salons and spas could benefit from Energy Efficiency Tax Deductions for lighting, HVAC upgrades, and more.
- Clean Electricity Investment Tax Credits offered returns of 30–70% for solar or other renewable installations.
- Programs like the Rural Energy for America Program (REAP) helped rural-based businesses invest in efficiency.
- Energy Efficiency Revolving Loans and ENERGY STAR support also provided long-term cost-saving opportunities.
With these programs at risk or already on the chopping block, salon and spa owners may see higher utility costs over time, as the financial incentives to invest in sustainable infrastructure diminish.
Medicaid: Healthcare on shaky ground
One of the biggest social implications of the new bill is its effect on Medicaid. The federal funding cuts and stricter eligibility requirements (such as work hour minimums) could make it harder for lower-wage workers, including salon assistants, part-time therapists, and front desk staff, to access healthcare. What your business should expect:
- More frequent redetermination of Medicaid eligibility could lead to interruptions in coverage for employees.
- Work requirements may disqualify part-time staff or those with inconsistent schedules — a common reality in salons and spas.
- Restrictions on gender-affirming care and immigrant access could make healthcare increasingly inaccessible for vulnerable groups within the workforce.
These changes may impact staffing schedule requests, and you may need your paperwork in order for more frequent verifications of employee hours and wages.
Other business tax deductions for beauty and wellness businesses
Naturally, much of the beauty and wellness industry's focus has been on tipping tax changes. However, the bill also includes tweaks to other business tax deductions, including:
- Business interest expense deduction: High-interest business investments (think multi-location salons, spas, or franchises with loans for expansion) will see an extra boost in interest deductions on their taxes.
- Full expensing (bonus depreciation) restored permanently: Businesses can immediately deduct 100% of the cost of qualifying assets (such as salon equipment, massage chairs, medspa technology, management software expenses, or spa renovations) rather than depreciating them over multiple years.
- Permanent QBI deduction: If your beauty or wellness business has been open for a few years, you may have benefited from the QBI (Qualified Business Income) deduction, applying to pass-through businesses (sole proprietors, partnerships, and S corps). This relief was set to expire in 2026, but is now made permanent under the new tax bill.
Client considerations
Understandably, many beauty and wellness professionals have concerns regarding how these new laws may impact clients and their ability to keep up with service costs. Thankfully, there are some steps you can take to help:
- Focus on bundles, deals, memberships, discounts, and the efforts your business is making to keep services accessible.
- Explore how your business can help. For example, hosting free events that support your community during challenging times may uplift those around you while earning you loyal clients for better times ahead.
- Revisit pricing if it makes sense for your business. You can evaluate changes in booking rates and profitability with the savings from these tax laws to find a pricing structure that works for you.
- Pay close attention to how service demand changes. In some cases, these tax changes may actually push clients towards beauty and wellness businesses rather than distancing them. For example, with changing healthcare options, getting an IV at a hydration spa may now be more cost-effective for certain clients than visiting a doctor's office for the same care. In this example, extending your IV mix-ins to meet this larger audience's needs can help you support clients while boosting profits.
How to prepare for the new beauty and wellness tax laws
These tax updates can offer significant advantages for beauty and wellness businesses — but only if you're ready to navigate them effectively. With major changes on the horizon, it's essential for both professionals and business owners to begin preparing now.
For salon and spa employees:
Talk to your tax advisor early. Whether you're a stylist, massage therapist, esthetician, or nail tech, understanding how the new tax-free tip rule applies to your role is key to maximizing your benefit and avoiding surprises come tax season.
If you're not thrilled with how the new tax law affects your current situation, you do have options. Start by having an open conversation with your salon owner or manager. There may be room for adjustments that better align with your needs, especially around employment classification or compensation. If your current role doesn't offer the flexibility or benefits you're looking for, consider exploring other opportunities in your area. A different salon, spa, barbershop, or wellness business may be better suited to your goals.
For beauty and wellness business owners:
To make the most of these changes (and minimize business disruptions), consider planning for tax season, including:
- Speaking with your tax consultant. Gain a clear understanding of how the new payroll tax credits and deductions will affect your business. Ask how to structure your operations to qualify for the Section 45B FICA Tip Credit and any additional tax-saving strategies.
- Reviewing employee classification: With W-2 employees now eligible for tax-free tips, some independent contractors (1099) may seek W-2 roles. Be proactive in evaluating whether converting contractors to employees aligns with your business, team, and ROI.
- Supporting staff retention: Non-tipped or part-time staff may also reconsider their positions if not included in benefit-eligible roles. Explore ways to keep them engaged, such as offering incentive programs or restructuring compensation where possible.
- Keeping diligent documentation. Accurate, well-organized financial records (especially around payroll, tips, and receipts) are critical under the new law. These records help you qualify for available tax credits, maintain compliance, avoid audit penalties, and save time come tax season.
The sooner you prepare, the more effectively you can take advantage of these new tax laws (or stay ahead of challenges). Whether you're an independent stylist or a multi-location salon owner, a conversation with your CPA or tax specialist is a smart place to start.
Navigating tax changes in the beauty and wellness industry
This tax bill isn't just numbers on paper — it's a potential shift in how beauty and wellness businesses support their teams and structure their finances. Salon and spa owners (especially those with part-time or tip-dependent employees) need to stay informed and adapt early. Consult your accountant about how these changes may affect your 2025 filings.
We'll be watching these developments closely and updating you as new information becomes available. You can subscribe to our newsletter to stay in the loop, or explore the tools you can use to support your business through changing times.
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