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Repeal of Withholding for Government Contractors

Posted 3:19 AM by

In 2005, a provision for withholding 3% on every payment made to a government contractor was placed into law. This would have affected payments received from the federal government, state governments, local governments and state agencies. In 2010, this provision was deferred until 2011 and, subsequently, deferred to 2012.

On November 21, the president signed a law that repealed the 3% withholding requirement for payments made after 2011. In explaining the reasons for repeal, the House Ways and Means Committee looked at the economic impact on contractors - including a reduction in cash flow - and the potential for small businesses to adjust the pricing to address the change in cash flow. The committee also looked at the substantial costs of the government to withhold on the payments being made to the contractor.