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Tuesday, June 22, 2010

Need to Examine Self-Employment Tax Policy

I think that recent changes to impose Medicare and surtax on high income individuals and the "loophole" closer proposal to tax some S corporation shareholders more broadly for employment tax purposes, call for a review of self-employment taxes. The review should also consider how to reduce the self-employment tax gap. Today, the IRS estimates that about 11% of the annual $345 billion tax gap represents SE tax. Also, some new ways of generating revenue, such as having ads on a personal website, call for updated guidance on what types of modern revenues are subject to SE tax.

A benefit of a review would hopefully be to avoid piecemeal changes, particularly ones geared more towards generating revenue to pay for a tax cut elsewhere than to improving the design of our tax system and to help it meet the principles of good tax policy.

I've got a short article on this topic in this week's AICPA Tax Insider. I hope you'll take a look and post comments here on how you think SE taxes should (or should not) be reformed.

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