IRS Withdraws Proposed Regulation on Government Contractor 3% Withholding
On April 25, the International Revenue Service finally gave official notice (77 FR 24660) that it was withdrawing its regulation (REG-151687-10) regarding withholding on government contractor payments, which had been scheduled to take effect on January 1, 2013. This action reflects passage and enactment of Public Law No. 112-56 to repeal the 3% automatic income tax withholding on all revenues earned by federal, state and certain local government contractors – without regard to their actual income tax liability.
OFDA participated in a broad business coalition that advocated for repeal of this regulation since it was originally approved by Congress and the President in 2006. Implementation of this controversial rule by the IRS had been delayed every few years since that time until the original provision was finally repealed by Congress and the President earlier this year.