On November 21, President Barack Obama signed into law the Three Percent Withholding Repeal and Job Creation Act (P.L. 112-56). The act repealed a requirement that 3% of payments to any person for services or property be withheld by the federal or state governments or their instrumentalities or subdivisions (including multistate agencies). The requirement had not yet gone into effect.
The act also created returning heroes and wounded warriors work opportunity tax credits for employers who hire military veterans. These credits are available to an employer for eligible individuals who begin work for the employer after November 21, 2011.
The act also amended the definition of modified adjusted gross income under Sec. 36B(d)(2), which determines eligibility for certain health care benefits and insurance coverage under the Patient Protection and Affordable Care Act of 2010, P.L. 111-148. This change was effective November 21, 2011.
Finally, the act allows the IRS to impose a 100% levy against payment due to a vendor for the sale or lease to the federal government of real estate or other types of property not considered goods or services if the vendor has an unpaid federal tax liability. Under previous law only vendors of goods or services were subject to the 100% levy. The act also directs Treasury to conduct a study on tax compliance by vendors to the federal government.
The AICPA had called on Congress to repeal the withholding provision, calling it an undue burden on both governments and contractors and unnecessary given existing tools to monitor contractors’ federal tax compliance.