The issue
The 3% withholding provision was part of Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) which was repealed by Congress in November 2011.
The effective date for the provision was originally January 1. 2011 but was delayed one year by the American Recovery and Reinvestment Act (P.L. 111-5).
This provision mandated that federal, state, and local governments withhold 3% from nearly all contract payments, Medicare payments, farm payments, and certain grants. The Government Withholding Relief Coalition argued that compliance with this law imposes significant and unnecessary financial burdens on both the public and private sectors and should be repealed.
The repeal of the 3% withholding provision gained momentum in Fall 2011. The Office of Management and Budget has released a statement of policy in support of H.R. 674, which would eventually pass the House and Senate and was signed by President Obama on November 21, 2011.
icma and big 7 outreach
ICMA and other Big 7 partners have signed on to letters submitted by the Government Withholding Relief Coalition:
- Letter in support of H.R. 674 which repeals the 3% withholding provision
- Letter in support of S. 1726 which repeals the 3% withholding provision
- Letter to House Ways and Means Committee in support of H.R. 674 that repeals 3% provision
- Letter to Senate in support of amendment to S. 493 that repeals the 3% law
- Letter to Chairman Issa
- Letter to the Congress on Need for Action in the Lame Duck
- Letter to House on Need for Action Before the End of the Year
- Letter to Senate on Need for Action Before the End of the Year
- Letter to the President
legislative activity
In late November 2011, President Obama signed a bill which includes a repeal of the 3% withholding provision. H.R. 674 passed the House in late October, and was passed in the Senate with an included amendment providing for tax credits for employers who hire unemployed veterans. The amended version was passed by the House and subsequently signed into law by the President.
Legislative History:
- Senate - S. 1726 (112th Congress)
- House – H.R. 674 (112th Congress)
- Senate – S. 164 (112th Congress)
- Senate – S. 89 (112th Congress)