From the desk of Judy Aragon-Dist. Director AMAGF NV, IRS Postpones 3% Contractor Withholding Tax

June 6, 2011 - PRLog -- Chief Counsel Applauds IRS Postponement of 3% Withholding Tax on Contractors


Washington, D.C. –Chief Counsel for Advocacy Winslow Sargeant applauded the recent decision by Internal Revenue Service (IRS) to postpone the starting date for the 3 percent contractor withholding rule and continued to call for its elimination. The rule requires governments to withhold 3 percent of nearly all payments made to contractors. With the postponement, the rule now applies to contracts awarded after 12/21/2012.  The Office of Advocacy has consistently worked with small businesses for the elimination of this unfair tax.

“The decision by the IRS to postpone the 3 percent withholding tax will help small businesses who are involved in government contracting,” said Sargeant. “And while I applaud the postponement, the Office of Advocacy is committed to supporting its elimination, because small businesses continue to face challenging conditions.”

The 3 percent withholding requirement will adversely affect all small businesses that provide services to government entities.  Most small businesses that provide services to government entities will have to increase their debt level in order to ensure sufficient cash flows & will be forced to pass these additional expenses to their government customers.  If small firms are unable to secure additional debt, the 3 percent withholding requirement may force them out of the Federal contracting market.

The law mandates that federal state& 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 1/1/11, 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/companies that receive new payments from the federal government do not accrue tax debt.

The Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government.  The presidentially appointed Chief Counsel for Advocacy advances the views, concerns, and interests of small business before Congress, the White House, federal agencies, federal courts, and state policymakers. Regional advocates and an office in Washington, D.C., support the Chief Counsel’s efforts. For more information, visit http://www.sba.gov/advocacy, or call (202) 205-6533.

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AMAGF, is a Veteran Owned SBA Packaging & Placement Firm, who's main objective is to help Existing & Start Up Businesses obtain the funding needed in order to realize their dream, create better cash flow and give them the ability to hire more AMERICANS.