Government Tax Withholding Relief

Inserted in the Tax Increase Prevention and Reconciliation Act of 2005 (H.R. 4297) is a sweeping new requirement mandating a 3% tax withholding on payments to contractors for goods and services provided to federal, state, and local governments.

Details of the provision (Section 511 of bill) include:

• Requires tax withholdings at a rate of 3% on payments for products and services made by the federal government, as well as State and local governments with contracting expenditures of $100 million or more

• Imposes burdensome information reporting requirements on payments that are subject to the withholding

• Does not apply to payments for government employee wages, interest, real property, tax-exempt entities, foreign governments, classified contracts, and intra-governmental payments

• Applies to payments starting in 2011

Senator Larry Craig (R-ID) has introduced legislation to repeal section 511 of the bill. Sen. Craig introduced his legislation, S. 2821, on May 16th that rescinds the expanded withholding requirement. MCAA has joined numerous other trade associations in sending a letter to Sen. Craig and his colleagues in the Senate expressing our support of S. 2821.