New law repeals 3% withholding rule for government contractors
On November 21, 2011, the President signed into law H.R. 674, the "3% Withholding Repeal and Job Creation Act" (the Act). The Act repeals Code Sec. 3402(t)'s controversial 3% withholding requirement on government contractor payments.
Repeal of 3% Withholding Rule for Government Contractors
In its explanation of H.R. 674 (H Rpt 112-253), the Ways and Means Committee cited the following reasons for repealing the Code Sec. 3402(t) withholding requirement:
- the withholding requirement would reduce cash flow to many cash-strapped employers that contract with governmental entities and undermine job creation;
- the "looming implementation" of the withholding requirement is contributing to the uncertainty facing employers during already uncertain economic times;
- the withholding requirement would impose substantial costs on Federal, State, and local governmental agencies required to withhold payments; and
- the withholding requirement could also cause small businesses contracting with governmental entities to adjust their prices in order to address the changes in their cash flows, potentially resulting in increased procurement costs at all levels of government.
Please contact us if you have any questions on the repeal.