Key Takeaways

• Treasury Secretary Scott Bessent has not paid nearly $1 million in Medicare taxes he owes.
• He set up his hedge fund as a limited partnership to dodge Medicare taxes on his income.
• While confirming him, senators asked for a reserve fund to cover any tax gap.
• As head of Treasury and the IRS, Bessent has stalled crafting rules on this tax loophole.
• His conflict of interest may delay clear guidance on how Medicare taxes apply to firm owners.

Bessent Holds Up Medicare Taxes Payment

Treasury Secretary Scott Bessent promised to reserve money for Medicare taxes he owes. Yet months after his confirmation, he still has not paid nearly $1 million. Critics say he used a legal structure to avoid Medicare taxes on hedge fund earnings. Meanwhile, he now leads the very agencies that decide new rules to close this loophole. As a result, he stands in the odd spot of fighting against his own tax bill.

During his January confirmation hearing, senators pressed him on the IRS guidance. They noted that firm owners should pay self-employment taxes to fund Social Security and Medicare. He agreed to create a reserve fund for any potential liability. However, since taking office in August, neither the Treasury nor the IRS has issued clear regulations on this issue. Bessent argues over how much he truly owes and questions the IRS’s interpretation. Consequently, the reserve fund has not moved forward.

How the Medicare Taxes Loophole Works

Hedge fund managers often use a limited partnership structure to reduce certain taxes. In this setup, owners pay income taxes but can sidestep self-employment taxes. As a shareholder-partner, Bessent avoided paying roughly nine hundred ten thousand dollars in Medicare taxes for 2021 through 2023. The IRS flagged this practice as improper but did not finalize new rules.

Under current law, self-employment taxes cover both Social Security and Medicare expenses. By calling his portion “investment income,” Bessent treated it differently. He reported profits under partnership rules. This allowed him to escape the 2.9 percent Medicare tax that most self-employed workers pay. Without updated guidance, firm owners nationwide could use the same tactic to save thousands.

Why Bessent Is Quiet on His Pledge

Since becoming Treasury Secretary, Bessent has resisted talking publicly about his unpaid taxes. He argues that the IRS’s approach to categorizing partnership income needs more study. Meanwhile, both the Treasury and IRS have “stepped back” from drafting rules that would clarify liability. Critics say this delay benefits Bessent directly.

Moreover, Bessent now oversees the agencies he once challenged. This dual role creates a conflict of interest. He has recused himself from some related decisions but still wields influence. As a result, AGs and tax advocates worry rules will never catch up. Without clear regulations, other fund managers may mimic his strategy. Consequently, billions in Medicare taxes could slip through the cracks.

What Comes Next

Bessent still holds the power to push new guidelines through the Treasury or IRS. He could fast-track public comments, draft proposed rules, and set firm deadlines. Yet insiders say the process remains on hold. Senators have threatened hearings if progress stalls further. Tax experts expect formal guidance by mid-next year.

In the meantime, Bessent’s reserve fund pledge hangs in limbo. He must decide whether to pay the disputed amount or continue contesting it. If he pays, he may set a precedent for other partnership-based firms. If he fights on, the IRS could face a court challenge. Ultimately, the outcome will shape how firm owners handle their Medicare taxes.

The Bigger Picture

The dispute over Bessent’s unpaid Medicare taxes highlights a wider issue. Lawmakers have long sought to curb tax avoidance by private-equity and hedge fund managers. The Biden administration listed this loophole as a priority in both 2023 and 2024. Still, no binding rule has emerged.

Also, the case underscores the need for clear tax rules. When senior officials dodge obligations, public trust erodes. Moreover, companies that follow the spirit of the law may feel penalized. As firm owners push back, the IRS must balance fairness and revenue needs. Without decisive action, this battle may drag on for years.

In the end, Bessent’s own choices will matter most. Will he honor his pledge and fund a reserve? Or will he keep disputing the IRS interpretation? Either way, taxpayers nationwide will watch closely as this saga unfolds.

Frequently Asked Questions

What is the main issue with Bessent’s tax situation?

He structured his hedge fund to label earnings as investment income, avoiding nearly $1 million in Medicare taxes.

Why haven’t new rules been issued?

Since Bessent leads the Treasury and IRS, both agencies have paused writing guidance on partnership income and self-employment taxes.

Could other fund managers use the same loophole?

Yes, without clear regulations, hedge and private-equity firms may mimic this tax strategy, risking major revenue losses.

What could force a resolution?

Senators could hold hearings, and the IRS might face court challenges, pushing for formal rules or a settlement.