3% Federal Withholding Amount

Effective January 2012, all government agencies at the federal, state, and local level will be required to withhold 3% from all payments for goods and services as a tool for the federal government to guard against business tax evasion.

This federal law was originally adopted in 2006 as the Tax Increase Prevention & Reconciliation Act 2005 (TIPRA), Sec 511. The effective date of the law was recently pushed out to January 2012 from 2011 with the recent passage of the federal economic stimulus bill, the American Recovery and Reinvestment Act.

There has been significant opposition to the bill from business and state and local governments. There is still hope that this provision may end up being repealed prior to January 2012. The bill would have a significant negative impact on the cash flow of contractors and therefore a negative impact on the prices paid by public agencies for public works projects, and ultimately on the amount paid by the taxpayers.

For more information, including the testimony before Congress on the 3% withholding requirement by the Associated General Contractors, visit the AGC's website.