Holding Out on the 3% Withholding Repeal for Government Contractors

In 2006, President George W. Bush passed the controversial 3% withholding requirement on payments due to vendors providing services to the federal, state, and local government entities. The 3% withholding applies to payments of $10,000 or more made after December 31, 2012, and in order to comply with the 3% withholding requirements, the payor would have to file Federal Form 945 and provide the payee with a Form 1099-MISC by January 31, 2013. If not repealed, this may create cash flow dilemmas for companies that do business with government entities.

On October 27, 2011, the House of Representatives passed H.R. 674 by an overwhelming vote of 405-16, which would repeal the controversial 3% withholding requirement. However, the repeal came to a screeching halt when it reached the Senate.