The bill titled HR 4213 passed this summer and is now law.
After Jan 1 any S-Corp that is relies on the "skill or reputation" of 3 or less individuals - or if the S-Corp is a partner in a service corporation - you no longer are exempt from payroll tax on your non-W2 income.
Or in other words - if you're a single owner S-Corp - bend over, because you're going to give up an extra 15% or so.
Check with your CPA - ours are going to have a busy day tomorrow. Our consulting firm has 13 or so employees so I think we are safe - but we can't be sure because we just found out about this.
You can read it here:
http://waysandmeans.house.gov/media/pdf/111/America_Jobs_Summary.pdf
The important bits are this (Page 24):
Ensuring collection of employment taxes earned by certain service professionals. Social Security taxes are imposed on compensation and self-employment income up to the Social Security Wage Base (currently $106,800) and the Medicare tax is imposed on all self-employment and compensation income. Some service professionals have been avoiding Medicare and Social Security taxes by routing their self-employment income through an S corporation. These taxpayers then pay themselves a nominal salary and take the position that the remaining earnings are exempt from employment taxes. The bill would address this abuse in situations where (1) an S corporation is engaged in a professional service business that is principally based on the reputation and skill of 3 or fewer individuals or (2) an S corporation that is a partner in a professional service business. The bill would also clarify that individuals that are engaged in professional service businesses are unable to avoid employment taxes by routing their earnings through a limited liability corporation or a limited partnership.
After Jan 1 any S-Corp that is relies on the "skill or reputation" of 3 or less individuals - or if the S-Corp is a partner in a service corporation - you no longer are exempt from payroll tax on your non-W2 income.
Or in other words - if you're a single owner S-Corp - bend over, because you're going to give up an extra 15% or so.
Check with your CPA - ours are going to have a busy day tomorrow. Our consulting firm has 13 or so employees so I think we are safe - but we can't be sure because we just found out about this.
You can read it here:
http://waysandmeans.house.gov/media/pdf/111/America_Jobs_Summary.pdf
The important bits are this (Page 24):
Ensuring collection of employment taxes earned by certain service professionals. Social Security taxes are imposed on compensation and self-employment income up to the Social Security Wage Base (currently $106,800) and the Medicare tax is imposed on all self-employment and compensation income. Some service professionals have been avoiding Medicare and Social Security taxes by routing their self-employment income through an S corporation. These taxpayers then pay themselves a nominal salary and take the position that the remaining earnings are exempt from employment taxes. The bill would address this abuse in situations where (1) an S corporation is engaged in a professional service business that is principally based on the reputation and skill of 3 or fewer individuals or (2) an S corporation that is a partner in a professional service business. The bill would also clarify that individuals that are engaged in professional service businesses are unable to avoid employment taxes by routing their earnings through a limited liability corporation or a limited partnership.
