Support the Snowe-Enzi Amendment for S Corporations

There is legislation moving through Congress that could increase payroll taxes on certain engineering firms that are organized as S corporations. The House of Representatives recently cleared legislation – HR 4213, the American Jobs and Closing Tax Loopholes Act of 2010 – that would apply payroll taxes to the distributions paid by certain professional services S corporations. Under the House bill, payroll taxes would apply to S corporation distributions in cases where (1) an S corporation is engaged in a professional services business where the principal asset of the business is the reputation and skill of three or fewer employees, or (2) a professional services S corporation is a partner in a partnership.

This issue originally surfaced in 2007 and was a response to concerns over the potential misuse of payroll tax rules by certain S corporations. The initial legislation applied payroll taxes to the distributions paid by all professional services S corporations, including engineering firms. After ACEC and other organizations raised serious concerns, the House Ways and Means Committee substantially scaled back the provision. Although the revised language would affect substantially fewer firms, ACEC remains very concerned that small, tax-compliant engineering S corporations would be subject to increased taxes.

This legislation could be on the Senate floor this week, and Senator Olympia Snowe (R-ME) and Senator Mike Enzi (R-WY) have filed an amendment to strike the S corporation language from the bill.  If you are with an engineering firm that is an S corporation and can help, please contact shall@acec.org this week.