By a unanimous 95-0 vote, the U.S. Senate put an end to the 3% withholding tax on contractors due to go into effect in January 2012. Since the legislation has already passed the U.S. House and is part of President Obama’s much-discussed jobs package, the White House is expected to sign the legislation into law soon.
Tag Archives: 3% withholding
There’s potentially good news on the horizon for the contracting community. The 3% withholding tax passed by Congress as part of the Tax Prevention Reconciliation Act of 2005 and scheduled to be fully implemented by January 1, 2013 has been repealed by the U.S. House of Representatives in a bipartisan 405-16 vote; the N&O’s coverage can be found here. The White House has indicated its intention to sign the bill into law if the Senate follows the House’s lead and votes for repeal.
By way of background, the 3% withholding was intended to ensure tax compliance by contractors performing work on government projects. The 2005 legislation required 3% withholding on payments for goods and services to contractors made by all branches of the federal government and its agencies and all units of state and local governments, including counties and parishes, with annual expenditures of $100 million or more.
The Associated General Contractors of America (“AGC”) has been fighting the 3% withholding with gusto, arguing primarily that it would put a squeeze on a contractor’s project cash flow, in turn raising payment bond surety risk that would lead to increased bonding costs. You can read the September 12, 2011 testimony of AGC CEO Stephen E. Sandherr to the IRS opposing implementation of the 3% withholding tax here.
Stay tuned for updates on repeal activity in the Senate.