IRS Delays 3% Withholding Requirement to 2013

Hearing Scheduled in House Small Business Committee

The Internal Revenue Service (IRS) issued final rules last week that delay the 3% withholding requirement on government contracts until 2013. Under this arrangement, the withholding and reporting requirements will generally apply to payments made after December 31, 2012.

Additionally, the House Small Business Committee will hold a hearing in order to more thoroughly address the 3% requirement on May 26. A repeal bill in the House, H.R. 674, originally introduced by Rep. Wally Herger (R-CA), has also garnered more than 100 cosponsors.

All of these developments, taken together, could increase the chances for a full repeal of the 3% withholding before the end of the year.

Previous attempts to delay the provision have been supported by industry as well as Congressional and Executive leaders. In March, President Barack Obama called for a three-year delay, echoing the requests of other observers who have hoped that a delay will give lawmakers more time to enact a full repeal.

The 3% withholding requirement was originally enacted in Section 511 of the Tax Increase Prevention and Reconciliation Act (TIPRA), which was signed into law in 2006. It was originally scheduled to go into effect on Jan. 1, 2011, but was delayed to Jan. 1, 2012 in 2009 by the American Recovery and Reinvestment Act (ARRA), and delayed to 2013 by last week’s IRS rulemaking. Should the requirement go into effect, most transactions for goods and services with a government entity would be subject to a 3% withholding tax, kept by the governmental entity in question.

NACM has fought the enactment of this provision, which will fall disproportionately on smaller businesses, since its introduction. As a member of the Government Withholding Relief Commission (GWRC), NACM has lobbied for a full repeal and hopes Congress acts quickly to remove this unfair and potentially harmful provision from the tax code.

Stay tuned to NACM’s Credit Real-Time blog, NACM’s eNews and Business Credit magazine for future updates.

Jacob Barron, NACM staff writer

No comments:

Post a Comment