WASHINGTON – U.S. Senator Ben Cardin (D-MD), a member of the Senate Finance and Small Business and Entrepreneurship committees, today voted to repeal the 3 percent withholding tax requirement that was to be imposed on contractors who do business with the government. The Senate voted 95 to 0 to repeal the tax. The Senate-passed repeal measure will go back to the House for final passage, where it is likely to pass. The President also is expected to sign the bill into law.
“Our economy is struggling and too many Americans are out of work. Our mission right now must be to focus on job creation. The original intent of the withholding provision was to ensure that businesses pay their full tax liability. But in reality it imposed an unfair tax burden by withholding needed cash from businesses that do not have the cash flow to absorb the withholding of a tax they may never even owe,” said Senator Cardin.
The law mandates that federal, state and certain larger local governments withhold 3 percent of payments for products and services worth more than $10,000, including non-confidential or classified contracts, grants to for-profit companies and farm and Medicare payments.
The repeal of the 3 percent withholding requirement included an amendment that allows the government to place a tax levy on contractors who are seriously delinquent in the payment of their taxes. This provision ensures that the government is able to collect taxes owed by contractors who are in arrears without penalizing contractors who are responsible and pay their taxes.
The requirement was scheduled to take effect on January 1, 2011, but was delayed a year in the 2009 American Recovery and Reinvestment Act. On May 5, 2011, the IRS issued regulations that further delayed the implementation of the withholding provision until January 1, 2013. On September 12, 2011, President Obama proposed the American Jobs Act of 2011, which included a section that would delay implementation of the withholding provision until after December 31, 2013.