Small Business Surtax of 3.8% for businesses organized as pass-through entities remains.
The U.S. House of Representatives released a new version of the Build Back Better Act on November 3, removing some of the anti-small business tax increases and mandates in earlier proposals but keeping others. Thanks in large part to the thousands of NFIB members who reached out to their members of Congress, many small business tax hikes and mandates that we’ve been fighting were removed from the latest spending proposal. These victories include defeating individual and corporate rate increases, Section 199A Small Business Deduction limits, and capital gains tax increases. However, as negotiations in Congress continue in the coming days or weeks, any of those harmful tax increases could return.
Several concerning policies remain in the latest spending plan and they directly target many small business owners. The latest bill includes:
- A massive expansion of the “Small Business Surtax,” imposing a 3.8% tax that will impact businesses organized as s-corporations, LLCs, sole proprietorships, and partnerships on all income over $400,000, and family-owned business that use a trust or estate to pass the family business on to the next generation (threshold of only $13,000). These income thresholds are not indexed for inflation, meaning the 3.8% would absorb an increasing number of small business owners and their income in future years. The expansion of the Small Business Surtax is projected to bring in $250 billion over a decade for the federal government. Additional surtaxes on income above $10 million (a 5% tax) and $25 million (3%) are also included.
- A four-week federal paid family and medical leave mandate.
- Several extreme labor- and workforce-related financial penalties designed to push small businesses toward PRO Act-like policy aims.
“Small businesses are managing challenges right now including labor shortages, rising inflation, supply chain disruptions, and COVID-19 variants,” said Kevin Kuhlman, NFIB Vice President of Federal Government Relations. “It is not the time for Congress to impose significant tax increases, inflexible mandates, and massive new civil monetary penalties on small businesses. The small business economy is fragile, and they simply cannot absorb these substantial fines and cost increases.”
While some of the harmful tax hikes and new mandates are not in the latest bill, now is not the time to pile any tax increases or new mandates on small business while they are already struggling with labor shortages, rising inflation, and supply chain disruptions. NFIB continues to monitor the latest developments and oppose the proposals that would further impact small businesses across America. Your representatives in the U.S. House and Senate need to hear from you on how the proposed Small Business Surtax and new mandates would affect your business. Our simple advocacy email tool, here, makes it easy to take action.