GOVERNMENT AFFAIRS

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 3 percent of the total from all payments made to any individual or business providing goods or services.

ABC strongly opposes the three percent withholding provisions of the Tax Increase Prevention and Reconciliation Act, as well as any subsequent regulation implementing these provisions.

Currently, there are three bills pending in both the House and Senate to fully repeal Section 511 (H.R. 674/S. 89/164). ABC supports this legislation to fully repeal 3 percent withholding requirements

Read ABC's Legislative Position on Three Percent Withholding

Background 

TIPRA Section 511:

• Requires withholding of 3 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.
• Initially slated to take effect in 2011. The American Recovery and Reinvestment Act of 2009 included a one-year deferral (until 2012) of the implementation of Section 511. On May 9, 2011, the Internal Revenue Service deferred the effective date for an additional year, until 2013.

 

Key Points for Construction:

• 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.

Recent Activity

On May 9, the Internal Revenue Service deferred implementation of Section 511 for an additional year – from Jan. 1, 2012 to Jan. 1, 2013.

Currently, there are three bills pending in Congress: H.R. 674, S. 89 and S.164 that would fully repeal Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005.

Recent Articles
 
Oct. 26th Repeal of 3 Percent Withholding Tax up for a Vote in the House

Aug. 10th ABC Offers Changes To Proposed Rule on 3% Withholding Tax

June 1st ABC Explains Impact Of 3 Percent Withholding Provision on Construction Contractors and Taxpayers 

May 9th IRS Defers Three Percent Withholding Regulation for Another Year

Nov. 17th ABC Pushes for Full Repeal of 3 Percent Withholding Requirement