WASHINGTON – U.S. Senator Mary L. Landrieu, D-La., Chair of the Senate Committee on Small Business and Entrepreneurship, made the following comments after the Internal Revenue Service (IRS) announced the delay of the contractor withholding rule, which requires governments to withhold 3 percent of all contract funds, to payments made after December 31, 2012.
“This decision couldn’t come at a better time. Small businesses are pinching pennies and cannot afford to receive reduced payments for government contracts,” Senator Landrieu said. “Many small businesses are already suffering, trying to make payroll and expand their businesses, and this rule would close the book on too many small businesses. While the delay is a move in the right direction, I am also committed to working with the Finance Committee to repeal this requirement that harms small businesses.”
The law mandates that federal, state and local governments, with expenditures of more than $100 million, withhold 3 percent of payments for products and services worth more than $10,000, including non-confidential or classified contracts, grants to for-profit companies and farm and Medicare payments. The requirement was scheduled to take effect on January 1, 2011, but was delayed a year in the 2009 American Recovery and Reinvestment Act.
The 3 percent provision was included in the 2005 Tax Increase Prevention and Reconciliation Act in an effort to ensure that individuals and companies that receive new payments from the federal government do not accrue tax debt.