Congress Passes 3% Withholding Repeal & Hiring Incentives

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Congress this week passed legislation repealing a provision that would have required federal, state and local governments to withhold 3% of any payments over $10,000 from government contractors and certain other vendors. The provision was intended to combat tax avoidance, but critics argued that it would restrict the cash flow of businesses and was too costly to implement.

In addition to repealing the withholding requirement related to government contractors, the 3% Withholding Repeal and Job Creation Act:

  • Expands tax incentives to encourage employers to hire veterans;
  • Expands the IRS’s continuous levy authority;
  • Extends the authority of the US Department of Veterans to obtain information from the IRS; and
  • Directs the Treasury Department to prepare a report on how to reduce the tax gap attributable to federal contractors.

To pay for the $12.8 billion cost of the 3% withholding repeal and expanded hiring incentives for veterans, the legislation adjusts the calculation of the modified adjusted gross income for determining eligibility for certain federal health care programs. It also delays scheduled reductions in fees for VA mortgage applications.

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