Bill > HR3840

This bill, titled the Narrowing Exceptions for Withholding Taxes Act of 2012, aims to change how certain businesses and their owners are taxed. Specifically, it requires shareholders of an S corporation (a type of business that passes income and losses through to its owners) that operates as a "professional service business" to include all income and losses from that business when calculating their self-employment taxes. A "professional service business" is broadly defined to include fields like health, law, accounting, consulting, and investment advice, where the business's activities primarily involve providing these services. The bill also addresses situations where an S corporation is part of a partnership in a professional service business, or where the S corporation's main asset is the skill of a few employees, by treating these as "disqualified S corporations" subject to the same tax rules. Additionally, it clarifies that partners who provide substantial services to a professional service business partnership cannot use certain exceptions to avoid self-employment taxes. The intention is to ensure that individuals working in these service-oriented businesses, even if structured as S corporations, contribute to employment taxes on their earnings from those businesses.