Movement to Delay or Repeal 3% Withholding Tax

Pressure continues to mount nationally for a delay or repeal to the 3% withholding tax that would require all federal, state, and local governments and agencies with annual expenditures in excess of $100 million to withhold 3% of each payment over $10,000 to vendors, contractors, and consultants, and send the money to the IRS for income tax purposes.

Delay Proposed in President's Jobs Bill:  The latest development comes from a provision in President Obama's proposed American Jobs Act that would delay implementation of the 3% withholding tax until January 1, 2014.  Recently, the IRS administratively delayed implementation of the provision until January 1, 2013 from January 1, 2012.
 

Purpose of the Law:  The 3% withholding tax was passed by Congress as part of the Tax Prevention and Reconciliation Act of 2005, and its implementation has been delayed based on a variety of concerns.  The law is intended to improve compliance of income tax payments by businesses and add money to the federal government's coffers. 

 

Negative Consequences of the Bill:  Businesses argue that the 3% withholding tax will hurt cash flow and creation of new jobs and cause an increase in prices they charge to the government.  For government agencies, it will be expensive to make changes to financial systems to implement the law.  Some public agencies have already begun the process of making the necessary programming changes to implement the law. 

 

AGC Speaks Out Against the Law:  The Chief Executive Officer of the Associated General Contractors (AGC), Stephen E. Sandherr, testified before the IRS on September 12, 2011 about concerns related to the 3% withholding law that will, unless Congress repeals or delays it, go into effect on January 1, 2013.  Click here to read Sandherr's eight pages of testimony.

Mike Purdy's Public Contracting Blog 

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