New Tax on S Corporations Proposed


As lawmakers scramble to find $6 billion to pay for a one-year extension of the Stafford student loan rates, they’ve turned their attention to S corporation businesses as one source of funding.  Under the tax code, S corporations are not subject to corporate taxation, and the profits and losses of the corporation are realized on the individual tax returns of the shareholders.  The new tax, proposed by Senator Harry Reid, would require S corporations with three or fewer shareholders who declare at least $250,000 a year to pay employment taxes on that income.  
Since 1998, financial institutions have been eligible to organize as S corporations.  According to the Federal Deposit Insurance Corporation (FDIC), there are 272 such banks in Texas and 2,299 nationwide.  
IBAT opposes any restructuring of the tax liability of S corporation shareholders and, in particular, the subjection of S corporation earnings to payroll taxes, as has been proposed here and before.