Democrats Will Offset Student Loan Bill by Tightening S Corp Rules

Tougher tax requirements on S corporations could be the cost of Senate Democrats heeding President Obama's call for legislation that would prevent federal student loan interest rates from doubling on July 1, according to text of the bill. The idea is similar to language passed by the Democrat-led House in 2010 that would have cracked down on service professionals in S corporations and certain partnerships that avoid paying Medicare and Social Security taxes by giving themselves a nominal salary, then claiming that the rest of their income routed through the business is exempt from such taxes. The proposal is being considered to pay for the almost $6 billion bill to keep student loan interest rates low.