Sens. Olympia Snowe (R-Maine), Mike Enzi (R-Wyo.) and John Ensign (R-Nev.) filed an amendment to the so-called tax extenders bill that would strike the section increasing the payroll tax on S corporations.
The provision raises approximately $11.2 billion by requiring principals in professional-service S corporations to pay employment taxes on a firm's profit.
The measure was created to stop owners from dodging employment taxes by paying themselves a nominal salary, which is subject to employment taxes, but then taking a huge distribution that is not subject to employment taxes.
Opponents contend the language in the Senate bill is ill-defined and goes too far in trying to stop the abuse. Under one interpretation of the measure, retained earnings would be subject to payroll taxes, which hurts a company's ability to reinvest in new technologies or hire new people.
The Senate is expected to continue debate on the bill next week, at which point the senators' amendment could be voted on.