The Supreme Court upheld the constitutionality of the individual mandate today. For health care agencies, providers, insurance companies, and states that means they have 18 months to rework their entire health care system, including creating the network of state-based exchanges where people will buy health insurance starting in 2014. It’s time for them to get busy.

For S corporation shareholders and other taxpayers, it means higher taxes starting in 2013. Specifically, the ruling preserves the new, 3.8 percent tax on investment income that will take effect next year. Coupled with the expiration of rates, the new top rates are:

  • S Corporation and Partnership Income: For shareholders/partners who work at the company, the new top rate rises from 35 percent to 40.8 percent. For shareholders/partners who don’t work at the business, the top rate rises to 44.6 percent.
  • Capital Gains: The top rate rises from 15 percent to 23.8 percent.
  • Dividends: The top rate rises from 15 percent to 44.6 percent.
  • Interest: The top rate rises from 35 percent to 44.6 percent.

Based on conversations with our members and other business groups, it is apparent that these higher tax rates on investment income are having a meaningful impact on investment and hiring decisions right now. Faced with this pending tax hike, employers are simply holding back.

These higher rates are also the reason S-Corp fully supports the House effort to pass legislation prior to the August break that would extend for one year all the current rates while setting into motion a process for tax reform in 2013.

With the Supreme Court ruling behind us, and the new 3.8 percent investment tax locked into place, it is even more important that the business community rally around the effort.