The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), extended various tax provisions scheduled to expire, including alternative minimum tax relief and lower capital gains and dividend tax rates.
Section 511 of TIPRA required all government entities to deduct and withhold three percent of the total from all payments made to any individual or business providing goods or services.
Read ABC's Legislative Position on Three Percent Withholding
- Requires withholding of three percent on all government payments for products and services made by the federal, state, and local governments with total expenditures of $100 million or more.
- Affects payments for goods and services under government contracts.
- Applies to payments beginning in 2011 (subsequently delayed to as a result of an amendment in the American Recovery and Reinvestment Act of 2009).
- Withholding applies to the total contract, not to the net revenue generated from a project. For construction contractors, this means the government is withholding funds necessary to complete a project, such as those necessary to pay for subcontractors, material and suppliers.
- The withholding provision will restrict cash flow, resulting in higher bond costs (which all construction contractors are legally required to carry) or denial of coverage. This drives up the cost of construction, which, in turn forces smaller firms out of the public sector market.
On March 5, 2009, ABC submitted comments with the U.S. Department of Treasury and the Internal Revenue Service (IRS), in response to a proposed rule seeking to implement the three percent tax withholding found in Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). The proposed regulations reflect changes in the law required by section 3402(t). In addition, on April 16, 2009, ABC testified at an informal public hearing regarding the proposed OSHA rulemaking.
For more information on this and other rulemakings, visit ABC's page.