In our last post on this topic, we looked at the background on the 3% withholding tax on payments to government contractors. For a number of reasons, we doubted that the new IRC section 3402(t) would ever go into effect. It now looks as if the demise of this new tax on government contractors is all but certain.
HR 674 passed the House of Representatives 405-16 on October 27, 2011. It passed the Senate 95-0 on November 10, 2011. Although President Obama has not yet signed the bill into law, the Administration has issued a statement supporting the repeal of the 3% withholding tax because it would create jobs: “The effect of the repeal of the withholding requirement would be to avoid a decrease in cashflow to these contractors, which would allow them to retain these funds and use them to create jobs and pay suppliers.”
For now, it looks like contractors can turn their attention to other issues.