Hope for Contractors: House Votes to Repeal Tax Withholding Rule
In a rare display of unity during a partisan year, the U.S. House of Representatives overwhelmingly voted (405-16) on October 27, 2011, to repeal a law requiring government entities to withhold 3 percent of what contractors are owed until they pay their taxes. The Senate has yet to vote.
The withholding rules require certain government entities (including federal, state, and local) to withhold 3 percent of the amount they owe to contractors providing them property or services. Contractors would then be able to claim a “credit” for these taxes when filing their income tax return.
Congress passed the withholding requirement in 2006 to combat tax evasion among government contractors. However, the law was never applied, because Congress later voted to push back the effective date to January 1, 2013.
A welcome relief
“Economic conditions have tightened the margins in the construction industry so much that this added withholding will be a hardship for many contractors. Repealing this requirement is best for the industry, and this news will come as a welcome relief,” says David English, a construction and real estate manager with LarsonAllen.
“Contractors have been on edge about this. The only work out there is government work. The margins are so tight; there’s no cash to fund 3 percent. This law hurts a sector of the economy that’s been hurt the most.”
Enough common ground to pass the bill?
Although the bill has received widespread support from both sides, Brian Buwalda, a LarsonAllen principal who specializes in commercial services, warns that making this legislation into a law is not that simple. “As best I know, most Senators are in favor of the repeal legislation. They just need to pass an overall bill that they can stick this into—with this provision being included as one tiny element. But the Democrats and Republicans are having difficulty finding any common ground these days, which is necessary to agree to a larger bill.”
The repeal legislation is expected to be reviewed by the Senate next week. If passed, it would move to President Obama to be signed into law.
You can track the status of the bill online.
Brian Buwalda, Principal
bbuwalda@larsonallen.com or 407-244-9322
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