Two stylists can work side by side in the same salon, do the same cuts for the same prices, and have completely different tax returns. One is an employee with taxes withheld from every paycheck. The other rents a chair, runs a small business, and owes self-employment tax and quarterly estimates. And a lot of stylists, tattoo artists, nail techs and estheticians sit somewhere in between without being sure which one they are.
If you work in a salon or studio anywhere in Frederick County or central Maryland, your classification decides how you're taxed, what you can deduct and what you owe each quarter. Here's how to tell where you stand.
Booth Renter vs. Employee: What Decides It
The IRS looks at who controls the work, not what the arrangement is called. A few questions settle most cases:
| Question | Points toward booth renter | Points toward employee |
|---|---|---|
| Who sets your schedule? | You do | The salon does |
| Who sets your prices? | You do | The salon does |
| Whose clients are they? | Yours, booked through your own system | The salon's, booked through the front desk |
| Who buys the products you use? | You do | The salon does |
| How are you paid? | Clients pay you, and you pay the salon rent | The salon pays you a wage or commission |
| Who carries the risk? | You can make or lose money | You're paid either way |
If most of your answers land on the left, you're likely a true booth renter running your own business. If most land on the right, you're likely an employee, whatever your paperwork says.
The "Something in Between" Problem
The hardest cases are commission arrangements paid on a 1099, where the salon controls most of the work but doesn't treat the stylist as an employee. That setup can leave both sides exposed. The stylist pays both halves of Social Security and Medicare as self-employment tax. If the arrangement is challenged, the salon can owe back payroll taxes and penalties.
If you own the salon, choose one model and run it consistently. If you're the stylist, know which model you're in so you can plan your taxes around it.
If You're a Booth Renter: You're Running a Business
As a booth renter, you report your income and expenses on Schedule C and pay self-employment tax of 15.3% on your net profit, on top of income tax. Nobody withholds anything, so you'll generally need to make quarterly estimated payments to both the IRS and Maryland.
The upside is that real business expenses come off the top. Common ones include:
- Booth or chair rent
- Shears, dryers, irons, clippers, machines and other tools
- Products you use on clients
- Your Maryland license renewal and continuing education
- Booking software, card processing fees and your business phone line
- Liability insurance
- Mileage for off-site work, like weddings and events
- Smocks and other work clothing that isn't suitable for everyday wear
- Marketing, your website and business cards
Booth renters can also set up their own retirement plan, such as a Solo 401(k) or SEP-IRA, and may be able to deduct health insurance premiums. As your profit grows, it's worth asking whether an S-Corp election would lower your self-employment tax.
If You're an Employee: Different Rules
As an employee, your income comes on a W-2 with taxes already withheld. The trade-off is that you generally can't deduct unreimbursed job expenses like tools or products on your federal return. If you're buying a lot of your own supplies as an employee, ask the salon about reimbursement, or ask yourself whether your arrangement actually looks more like booth rental.
Tips and the New Federal Deduction
Every tip is taxable income, whether it comes in cash, on a card or through a payment app. Employees report tips to their employer. Booth renters include them in their business income.
Starting with 2025 tax returns, a new federal deduction lets eligible workers in occupations that customarily receive tips, including hairstylists and cosmetologists, deduct up to $25,000 of qualified tips a year through 2028. The deduction phases out above $150,000 of income for single filers and $300,000 for joint filers. A few things to know:
- It's a federal income tax deduction only. Tips are still subject to Social Security and Medicare tax.
- Maryland hasn't adopted it, so your tips are still taxed on your Maryland and county return.
- Good records matter more than ever. Keep track of tips separately from service income.
We cover the details, including the income limits, in our no tax on tips guide.
For Salon Owners
If you rent chairs to stylists, the rent is business income to you, and the arrangement should look like a real rental. Get a written agreement, let renters control their own schedules, prices and clients, and don't run their sales through your register. If you'd rather have more control, an employee model may fit better. Either way, decide on purpose and keep your records consistent with it.
Whether you rent a chair, run the salon or do a bit of both, we'll sort out your classification, your deductions and your quarterly payments so tax time isn't a surprise. Call (301) 662-6992.
Frequently asked questions
Look at who controls the work. If you set your own schedule and prices, keep your own clients, buy your own products and pay the salon rent, you're likely a booth renter. If the salon controls those things and pays you, you're likely an employee.
