Congress repeals three percent withholding on payments to government contractors
Nov 29, 2011
President Obama signed the Three Percent Withholding Repeal and Job Creation Act on November 21, 2011. The new law repeals the three percent withholding on government contractors.
Background
The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) enacted a three percent government withholding requirement on certain payments to government contractors and others providing property or services. The mandatory withholding applied not only to payments by the federal government but also to payments by state and local governments as well as their political subdivisions. However, certain payments, such as interest, were exempt. Under TIPRA, government withholding initially had been scheduled to apply to payments made after December 31, 2010.
What does the repeal of the three percent withholding mean for government contractors?
HR 674 repeals the three percent government withholding requirement as if it had never been enacted. The withholding provision had previously been delayed several times. Most recently, the IRS delayed the withholding requirement until January 1, 2013. Critics of three percent government withholding had argued that the compliance costs to taxpayers would have outweighed any benefits to the federal government and privacy would have been compromised.
For more info
Contact Steve Ball, director of Gross Mendelsohn’s Construction & Real Estate Group, via email or 410.685.5512.
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