Calculating Retainage on Public Works Contracts

On public works contracts in Washington State, public agencies are required to withhold 5% of each progress payment as Retainage. The Retainage is a trust fund for the protection of the Washington State Department of Revenue for unpaid taxes and for workers, subcontractors, and suppliers who have not been paid. See chapter 60.28 RCW.

When calculating the amount of Retainage, a question frequently comes up: Is the Retainage calculated on the amount earned by the contractor before or after the application of the sales tax amount?

Answer: Retainage should be calculated before the sales tax amount, and just on the amount actually earned by the contractor.

In other words, take the amount earned by the contractor for the month (without sales tax), take 5% of that amount to calculate Retainage, and then add sales tax to the amount earned by the contractor for the month. The following chart illustrates how to calculate the Retainage:

$100,000.00	Total amount earned by the contractor
$5,000.00	Minus 5% Retainage
$95,000.00	Equals total amount earned and due to Contractor
$9,000.00	Plus sales tax at 9% (King County rate) calculated on the total amount earned by the contractor
$104,000.00	Total payment to contractor (total amount earned and due to contractor plus sales tax amount)