Congress Approves Repeal of 3% Government Contractor Withholding Tax
The House of Representatives on November 16 voted 422-0 to approve legislation that would repeal the three percent withholding requirement under section 3402(t) for payments by federal, state, and local government entities to persons providing certain property or services. The 3% Withholding Repeal and Job Creation Act (H.R. 674) won overwhelming support in the Senate on November 10 and now goes to the White House where President Obama is expected to sign it into law.
The withholding requirement, which was enacted in the Tax Increase Prevention and Reconciliation Act of 2005, was originally scheduled to take effect for payments made after December 31, 2010. Because of concerns about the compliance costs and administrative burdens associated with the requirement, Congress postponed its implementation until 2012 under the American Recovery and Reinvestment Act of 2009, and the IRS delayed it yet again – until 2013 – under regulations issued earlier this year.
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