Congress repeals 3% withholding, enacts worker credit for veterans

On Nov. 21, President Barack Obama signed into law an act (P.L. 112-56) that repeals a 3% government contractor withholding requirement. The act removes Sec. 3402(t), which required withholding of 3% of payments by the federal or state governments or their instrumentalities or subdivisions (including multistate agencies) to any person for services or property. The requirement would have been effective with payments made after Dec. 31, 2012.

The AICPA had urged Congress to repeal the measure, which was enacted as part of the Tax Increase Prevention and Reconciliation Act of 2005, P.L. 109-222. Ed Karl, the AICPA’s vice president–Taxation, commended Congress for passing the legislation.

The act contains a handful of other tax provisions. It creates tax credits—called returning heroes and wounded warriors work opportunity tax credits—for employers who hire military veterans. The credits are available for eligible individuals who begin work for the employer after Nov. 21, 2011.

The act also amends the definition of modified adjusted gross income under Sec. 36B(d)(2), which determines eligibility for certain health care benefits and insurance coverage provisions under the Patient Protection and Affordable Care Act of 2010, P.L. 111-148. This change was effective Nov. 21.

In addition, the act allows the IRS to impose a 100% levy against payment due to a vendor of property sold or leased to the federal government if the vendor has an unpaid federal tax liability. Under prior law only vendors of goods or services were subject to the 100% levy. It also directs the Treasury Department to conduct a study on tax compliance by vendors to the federal government.

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