We don’t know if this will pass or not, but we thought all should be aware of “The Stop the Student Loan Interest Rate Hike Bill of 2012″ (Sen 2343). It would have all S corporations with three or fewer employees who earn more than $250,000, liable for payroll taxes. Here’s a summary of the proposed bill:
- Interest rates on subsidized Stafford loans are set to double from 3.4 percent to 6.8 percent on July 1, 2012.
- This legislation will maintain the Federal student loan interest rate at 3.4 percent for an additional school year.
- The cost of a one-year extension is $5.9 billion and is covered by closing a tax loophole that certain professional service businesses use to avoid employment taxes.
- This proposal closes the loophole by requiring those with incomes over $250,000 to include, for purposes of employment taxes, income received from a Subchapter S Corporation or limited partnership interest in a professional services business.
- An S Corporation does not pay corporate taxes but passes income through to the individual shareholders, who can report it as profits rather than wages in order to lower their employment tax burden.
- The proposal is targeted only to those S Corporations that derive 75 percent or more of their gross revenues from the services of three or fewer shareholders or where the Subchapter S Corporation is a partner in a professional service business.