Sec. 202. Requiring high-income professionals to pay their payroll taxes
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Section 1402 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: In the case of an applicable shareholder who provides substantial services with respect to a professional service business referred to in subparagraph
(C)of a specified S corporation— such shareholder shall be treated as engaged in the trade or business of such professional service business with respect to items of income or loss described in section 1366 which are attributable to such business, and such shareholder's net earnings from self-employment shall include such shareholder’s pro rata share of such items of income or loss, except that in computing such pro rata share of such items the exceptions provided in subsection
(a)shall apply. Except as otherwise provided by the Secretary, the applicable shareholder’s pro rata share of items referred to in subparagraph
(A)shall be increased by the pro rata share of such items of each member of such applicable shareholder’s family (within the meaning of section 318(a)(1)) who does not provide substantial services with respect to such professional service business. For purposes of this subsection, the term specified S corporation means— any S corporation which is a partner in a partnership which is engaged in a professional service business if substantially all of the activities of such S corporation are performed in connection with such partnership, and any other S corporation which is engaged in a professional service business if 75 percent or more of the gross income of such business is attributable to service of 3 or fewer shareholders of such corporation. For purposes of this paragraph, the term applicable shareholder means any shareholder whose modified adjusted gross income for the taxable year exceeds— in the case of a shareholder making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $250,000, in the case of a married shareholder (as defined in section 7703) filing a separate return, half of the dollar amount determined under clause (i), and in any other case, $200,000. In the case of any partnership which is engaged in a professional service business, subsection (a)(13) shall not apply to any applicable partner who provides substantial services with respect to such professional service business. For purposes of this paragraph, the term applicable partner means any partner whose modified adjusted gross income for the taxable year exceeds— in the case of a partner making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $250,000, in the case of a married partner (as defined in section 7703) filing a separate return, half of the dollar amount determined under clause (i), and in any other case, $200,000. For purposes of this subsection, the term professional service business means any trade or business (or portion thereof) providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services. For purposes of this subsection, the term modified adjusted gross income means adjusted gross income— determined without regard to any deduction allowed under section 164(f), and increased by the amount excluded from gross income under section 911(a)(1). The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations which prevent the avoidance of the purposes of this subsection through tiered entities or otherwise. For employment tax treatment of wages paid to shareholders of S corporations, see subtitle C. . Section 211 of the Social Security Act is amended by adding at the end the following new subsection: In the case of an applicable shareholder who provides substantial services with respect to a professional service business referred to in subparagraph
(C)of a specified S corporation— such shareholder shall be treated as engaged in the trade or business of such professional service business with respect to items of income or loss described in section 1366 of the Internal Revenue Code of 1986 which are attributable to such business, and such shareholder's net earnings from self-employment shall include such shareholder’s pro rata share of such items of income or loss, except that in computing such pro rata share of such items the exceptions provided in subsection
(a)shall apply. Except as otherwise provided by the Secretary of the Treasury, the applicable shareholder’s pro rata share of items referred to in subparagraph
(A)shall be increased by the pro rata share of such items of each member of such applicable shareholder’s family (within the meaning of section 318(a)(1) of the Internal Revenue Code of 1986) who does not provide substantial services with respect to such professional service business. For purposes of this subsection, the term specified S corporation means— any S corporation (as defined in section 1361(a) of the Internal Revenue Code of 1986) which is a partner in a partnership which is engaged in a professional service business if substantially all of the activities of such S corporation are performed in connection with such partnership, and any other S corporation (as so defined) which is engaged in a professional service business if 75 percent or more of the gross income of such business is attributable to service of 3 or fewer shareholders of such corporation. For purposes of this paragraph, the term applicable shareholder means any shareholder whose modified adjusted gross income for the taxable year exceeds— in the case of a shareholder making a joint return under section 6013 of the Internal Revenue Code of 1986 or a surviving spouse (as defined in section 2(a) of such Code), $250,000, in the case of a married shareholder (as defined in section 7703 of such Code) filing a separate return, half of the dollar amount determined under clause (i), and in any other case, $200,000. In the case of any partnership which is engaged in a professional service business, subsection (a)(12) shall not apply to any applicable partner who provides substantial services with respect to such professional service business. For purposes of this paragraph, the term applicable partner means any partner whose modified adjusted gross income for the taxable year exceeds— in the case of a partner making a joint return under section 6013 of the Internal Revenue Code of 1986 or a surviving spouse (as defined in section 2(a) of such Code), $250,000, in the case of a married partner (as defined in section 7703 of such Code) filing a separate return, half of the dollar amount determined under clause (i), and in any other case, $200,000. For purposes of this subsection, the term professional service business means any trade or business (or portion thereof) providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services. For purposes of this subsection, the term modified adjusted gross income means adjusted gross income as determined under section 62 of the Internal Revenue Code of 1986— determined without regard to any deduction allowed under section 164(f) of such Code, and increased by the amount excluded from gross income under section 911(a)(1) of such Code. . The amendments made by this section shall apply to taxable years beginning after December 31, 2012.