Intro:
Do you feel like you were meant to have a kick-ass career as a hairstylist?
Like you got into this industry to make big things happen?
Maybe you’re struggling to build a solid base and want some stability.
Maybe you know social media is important, but it feels like a waste of time because you weren’t seeing any results.
Maybe you’ve already had some amazing success but are craving more.
Maybe you’re ready to truly enjoy the freedom and flexibility this industry has to offer.
Cutting and coloring skills will only get you so far, but to build a life long career as a wealthy stylist, it takes business skills and a serious marketing strategy.
When you’re ready to quit just working in your business and start working on it, join us here where we share real success stories from real stylists.
I’m Britt Seva, social media and marketing strategist just for hair stylists, and this is the Thriving Stylist Podcast.
Britt:
What is up and welcome back to the Thriving Stylist Podcast.
I’m your host Britt Seva, and today we are talking about what the heck is up with the Venmo, Tippy, PayPal, 1099 tax reporting situation.
I’ll be honest, this one totally snuck up on me, and I think it’s something that not enough people, experts, CPAs are talking about, and I think that we should have this conversation.
So this hit my radar, and truly, maybe I’ve been living under a rock.
I’ll be the first to admit.
Somehow I missed this announcement.
This hit my radar when it started with one salon owner DM’ed me asking a question about a 1099, a stylist of hers received.
I’m going to give you the backstory on it in a second.
Then about a week later, I got another DM from another salon owner who said that her booking software was starting to offer this kind of like tip processing, direct to stylist payout system.
We’re going to unpack it in a second.
So hold tight.
If that doesn’t make sense, it’s okay.
I’ll get into it.
However, there was this 1099 element that she wasn’t expecting.
Then a couple of days after that, I heard from a stylist who was like, what the heck?
I have this 1099 in this tax bill I wasn’t expecting.
What’s going on?
So I realized like, whoa, this is a wave that is just starting to hit the shore.
And I had to take a step back and do some research, understand what was going on.
And this year was almost like the dip your toe into the pool year, where it’s just starting to roll out.
Not a ton of people were affected, but some were.
Next year, more are.
The year after that, even more are.
And within the next couple of years, a lot of stylists are.
And so I feel like this is such a great time to discuss what’s happening and what’s changing with these services like Venmo, PayPal, you know, any kind of Apple Pay, any kind of virtual cash transaction system.
I wanted to do a deep dive on what’s changing as far as federal income tax reporting so that everybody can be prepared.
So if you are a stylist or salon owner that accepts payment through Venmo, PayPal, Cash App, like I said, Apple Pay, if you use a service like Tippy, if you use part of the new service that for a salon software offers through their tip management system.
Anybody who’s using any of these tip out systems, cash transaction systems, there is a chance that you got a 1099K form this year that you weren’t expecting.
So a regulation was passed that in my opinion, kind of flew under the radar.
So if you didn’t know it happened, I didn’t know it happened either.
And what surprised me was that there was stylist and salon owners whose CPAs didn’t even know it happened and didn’t realize what was going on.
If you received a total of $5,000 or more through a payment app in 2024, that company is now required, mandated, to report that revenue to you and to the IRS through a 1099K process, which means if you ran $5,000 in transactions through Venmo, hello, Bridal Stylists, and other people who are using it at Volume, that money that previously you may have been just kind of letting ride under the radar is no longer under the radar because there is a mandate in place that requires reporting of that revenue.
Now, before 2024, this system was still in place.
However, the threshold was $20,000 or more, and you had to have at least 200 transactions.
I think in our industry specifically, that probably wasn’t happening nearly as often that you had $20,000 in Venmo transactions to claim for the year.
I think some people did.
I don’t think a lot of people did it scale.
So this 1099 thing didn’t really hit.
Well, now that transaction requirement is gone, that’s not even a thing at all.
And for those of you who are like, oh, well, no worries.
I’m not processing $5,000 on these cash apps.
Well, wait for it, because the threshold drops to $2,500 in 2025 and then $600 in 2026.
So come 2026, if you are accepting any kind of gratuities or service payments or anything like that on Venmo, PayPal, Cash App, Apple Pay.
Anything like that, and it’s been flying low under the radar, be careful because you’re no longer under the radar.
And it’s important that we discuss how this reporting is going to affect you and how to best prepare.
So first of all, I have to direct you back to a past episode, 189.
It’s called, Let’s Talk About Venmo and Other Forms of Alternative Payment.
So 189, this podcast probably came out in 2023.
And I was talking about how there’s some risks in using apps like Venmo and PayPal if you’ve not registered yourself as a business on those tools.
So I know for a lot of us, we were just using our personal Venmo to accept gratuities or our personal PayPal to make that cash.
And we likely weren’t reporting it.
And I only coach the legal and above board.
I always like to say that, but I’m also a realist.
And I know that people are doing what they’re doing.
What I mentioned in that podcast is that Venmo, PayPal and most of these apps that work in this way are within their legal right to withhold that money if they believe it’s not being used for personal services.
So for example, personal services is the wrong way to use.
Personal use only.
So for example, we went out to dinner this last weekend with my son’s good friend and his mom.
So it was the four of us out to dinner.
She bought dinner.
I Venmo-ed her 50 bucks for the pizza or whatever.
That’s okay.
There doesn’t need to be an IRS reporting for that.
That’s a cash exchange between two friends.
It’s not a business transaction.
Venmo, PayPal, all these systems get that.
If you are providing a service to somebody, say doing hair or doing nails or doing a wedding or something like that, and you are using these apps to accept payment for some kind of professional transaction, if these apps even believe that is what’s happening, they are within their right to hold that money, and you accepted those terms and conditions when you signed up for the app.
You just didn’t realize it because none of us read those things, but go back and listen to the episode.
The other thing I share in the episode is a story from a bridal stylist, who when I reported this way back when, openly said, oh my gosh, I listened to your podcast, went back and checked, and I had been taking deposits from brides that Venmo was keeping, because I was not registered as a business, and I didn’t realize they could do that.
And then she went into a battle of trying to get that money back.
I know that we don’t like to use the professional versions of these apps, because then you’re paying credit card processing fees, and all of that, and I know it’s not credit card, but you’re using processing fees, which is what we’re trying to avoid.
If we wanted to pay processing fees, we would use credit cards, but we prefer not to do that.
So we liked these cash transaction apps because it felt like a digital alternative to cash, and it was until now.
So then the question becomes, is it still worth it to use these apps?
And that’s why I think we need to start thinking about the customer and deciding like, what really works the best for our clients?
You know, not everybody does carry cash.
And if you want an alternative to receiving a tip on a credit card, it could still be viable for you.
It just is not going to be tax free.
And that’s the most important thing to understand.
So one of the things that came up when a salon owner was messaging me about this is she said, Britt, I hate this.
The reason that we liked using, I don’t know if she was using Venmo or what it was she was using.
She was like, the reason we like doing this is because then our service providers get their tips immediately, which that part I completely understand.
I was the leader of a commission salon.
And so any tips that came through on the credit card, our stylists were not getting until two weeks later sometimes, right?
Which is annoying.
It’s like if you get a nice juicy tip, you’d like to have that today.
And having these kind of virtual cash transaction apps was such a nice in between of that.
It’s a virtual transaction, but you can get it right now.
And I know that’s what a lot of salon owners like.
But what this salon owner was saying was the other reason why we like it is because it saves us money.
And that part I’m not so sure about.
So the thing that I think was confusing for some salon owners is this idea that the owner pays less taxes if they’re not processing tips.
And that part, that part I can’t quite get my head around.
So let me explain to you how the math works in my mind.
So when a salon processes a tip or gratuity, whatever, that was left for a stylist, there is not a single salon I’m aware of that takes any kind of interest in that gratuity.
And I’ve seen comments like, the client always knows 100 percent of the tip goes to the service provider.
I personally don’t know of a salon where 100 percent of the tip doesn’t go to the service provider.
I know in some salons, the stylist like tip out assistance and stuff like that, but it’s like the money comes in, it goes directly to the stylist and then whatever needs to happen needs to happen.
I don’t know of a salon where the owner takes a cut or something like that.
That’s not a system I’m aware of.
That would be kind of a tough sell.
So I don’t know about that part.
But essentially, gratuity coming in to the salon that was intended to go to a stylist is like pass through revenue to the salon.
The salon doesn’t have any kind of tax implication on that money because let’s say it was $100 gratuity.
Yes, the salon technically would be required to pay their 6.2% employer tax, whatever you want to call it, social security, Medicare, whatever that 6.2%.
But it’s the 6.2% of the $100 that was never going to be yours anyway.
That $100 was always just going to go to the stylist.
So technically, that $6.20 hits your tax implication, but it was never your $6.20.
It was always the stylist’s money, so they’re paying that part.
Then they pay their part, their 6.2%.
Then the remaining gratuity of the $100 gets tax at their income tax level and they get the remaining.
It’s all the stylist taking the tax implication on that because the business only pays taxes on the profitable piece, and there was nothing in that gratuity was profitable to the salon owner.
So I’m having a hard time seeing the tax implication there.
I think some people said like, well, the headache of payroll and processing on the gratuities.
I never found that to be like a huge headache.
It takes maybe like two minutes or something like that.
But maybe you do have an overly complicated payroll system where managing gratuity is hard and it’s complex, and it saves you that headache and that nightmare.
That’s totally fine.
If you find that using this systems makes things easier for your stylist, it does prevent some kind of payroll headache, continue to use them.
I think it’s totally fine.
Just don’t use them as a way to avoid taxes because it’s not going to shake out like it has in the past.
I want to talk about a couple of systems Tippy and Forrest Tips.
This podcast is not sponsored by either company.
I’m not consulted with either company before doing this episode.
I just did a little bit of Google research.
I’m not here to say if the companies are good or bad or indifferent.
All I’m saying is from my understanding and from my research, if you use services like that, you still do fall into this category.
The statements directly on the Tippy website are that they themselves are not the ones sending the 1099s.
Tippy is not sending the 1099.
What is on the website there is that Tippy partners with Branch, a digital wallet so service professionals can have instant access to their tips.
From the Branch wallet, you can spend the tips you’ve earned immediately via Apple Pay, Google Pay, or the Branch card.
You can also transfer your tips to an external bank account through traditional ACH transfer methods.
ACH transfer methods may take up to three to five business days, depending on weekends or holidays.
If you were using Tippy before March of 2022, your bank account may have been directly connected for ACH deposits.
This feature is no longer active.
Moving forward, all new users and anyone updating their bank account will need to connect to Branch.
Okay, so then new statement from just a couple of months ago, Tippy does not issue any tax documents.
Based on legislation, Tippy’s partners may be subject to producing these documents.
So the partners are the ones who are going to be doing these 1099s.
Tippy and our partners will be in contact with our users and owners via email with updates about these policies.
All questions regarding taxes should be relayed to your owner, business manager or tax professional.
Diwala is the Tippy partner that facilitates the daily ACH transfers to bank accounts, while Tippy is not required to submit this form, our transfer partner, Diwala, is required to report transactions received by users in its network to the IRS in a 1099K form, if any single user receives more than $5,000 in payments in the 2024 tax year.
Then again, in the years that follow, they will be reporting as those numbers go down.
So it’s within their legal requirements to do so.
Now, the owner that I talked to, who said that they are working with Forrest Tips to try and figure out exactly how all of that is going to work, their understanding was that there was a 1099 component as well.
They weren’t sure if it was a third party who was reporting it or not.
But that, of course, basically anybody who is providing a service such as this is not going to help you evade taxes, right?
They’re all going to want to be reputable reporters.
So then the other question that came up was, there was a salon owner who was in a panic and she was like, Oh my gosh, well, is this going to fall to me if my stylist had not been claiming their tips in the past?
Because technically there’s guidelines that say that the owner needs to make sure that tips that come through are reported to the IRS.
When I researched the quote that I saw was in summary, while employers can encourage or require reporting of cash tips for tax purposes, they cannot force employees to claim tips that they did not receive or report.
So if the salon owner doesn’t have record of the tip coming through, they’re not mandated to report.
However, if the owner does have record of the tip coming through, it might change the game.
But the other quote was, if you have concerns about your specific situation, it might be helpful to consult with a labor attorney or a tax professional.
And I will say I had a really hard time finding a hard deadline on that or a hard guideline on that.
And when I talked to other owners, their CPAs were kind of giving them a little bit of a run around too.
So like I said, I always coach the legal and above board.
I think there’s so many benefits just to claiming everything that you make.
The point and purpose of this podcast is to let you understand, with the exception of cash, there’s not a lot that’s going to be able to fly under the radar moving forward.
And this is kind of your call to action to get organized in 2025, heading into the future years.
So, you do not get an unexpected tax bill.
So, how much should you be planning to save if you are somebody who uses a Venmo, either for gratuities or for service payments or whatever?
The suggested savings requirement is 20 to 35% of what you receive.
However, that is absolutely going to vary based on your overall annual revenue, your tax status, so many different things.
If you are not already working with the CPA, you should do it.
You should do it.
It’s one of those things I’m really passionate about because a lot of people say like, well, I can’t afford a CPA.
I would rather just do the free tax filing that’s available online.
I think that’s fine when you’re a W-2 employee.
If you’re a W-2 employee, I think it’s totally okay to use the free tax filing options or the very low cost tax filing options.
Your taxes are pretty clean and simple until you have complications.
Like you own a home or you have investment income, and then we’re in a totally different ballgame.
But if you are somebody who is maybe newer in your career and you’re a W-2 employee and you don’t have a ton of complications, you can do it that way.
As soon as you’re a booth renter or a salon owner or a studio suite owner, I personally think your CPA pays for themselves.
I really do.
Let’s say the CPA cost you $2,000 a year.
A good CPA is going to save you way more than $2,000.
I have yet to, I’ve worked with, I think, four really great CPAs in recent years.
They have always saved me money.
They always saved me more than I have to pay them.
I’ve never come out upside down on that investment.
And when you find the right person, it’s not an expense, it really is an investment.
And having their advice and having them walk you through this and prepare for those tax payments and the savings so that you’re never blindsided, if for nothing else than the financial piece of mind, they’re worth their weight in gold.
So while I understand, like in our industry especially, it’s like margins are, we’re trying to cut corners.
Your finance management is not one of the areas I personally would cut corners because there is nothing more stressful, exhausting or concerning than an IRS audit.
And or receiving an unexpected tax bill come February of 2026, when now you owe $5,000, you weren’t expecting to pay and you don’t got it.
I mean, that’s the worst case scenario.
So this is your opportunity to get your financial house in order.
Now, at the time of this recording, there was a digital cash transfer option that was not yet falling under this umbrella.
In the research that I found, you should talk to a CPA, you should talk to a financial advisor, somebody who can advise you more, but I could not find documentation that said Zelle Transactions fell into this category.
So something to keep in mind, it doesn’t look like Zelle will be reporting, at least at this crossroads, that could change at any moment, but that was the one common industry cash transfer app that I was able to find that did not look like it was reporting at this time.
If you use anything else, I strongly suggest that you do your own research, figure out if there’s going to be a 1099K issued to you at the start of next year, so that you’re not blindsided.
Start saving and setting aside that revenue now, so that you’re not shocked in the new year, when you have to file those taxes.
All right, that’s it for this one.
So much love, happy business building, and I’ll see you on the next one.
