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Nov. 22, 2011: Repeal of 3 Percent Withholding Tax on Government Contracts Signed Into Law

November 22, 2011
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WASHINGTON — Legislation repealing the 3 percent withholding tax on government contracts has been signed into law by President Obama. The legislation, H.R. 674 - 3% Withholding Repeal and Job Creation Act, also includes a provision providing tax credits to companies hiring military veterans.

The proposed withholding of 3 percent tax — originally set to take effect in 2011, then pushed back to Jan. 1, 2012 and then to Jan. 1, 2013 — was to apply to payments for goods and services on federal, state, and local government contracts.

A number of trade associations opposed the 3 percent withholding tax including the Associated Builders and Contractors (ABC), Air Conditioning Contractors of America (ACCA), Mechanical Contractors Association of America (MCAA), Plumbing-Heating-Cooling Contractors - National Association (PHCC), and the Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA).

Those opposed noted that the withholding tax was punitive and would increase costs for contractors and also for the government in order to ensure compliance with the required withholding.

Publication date: 11/21/2011

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