Withholding Tax Expected To Be Axed
October 27, 2011 by Sam Rolley
House lawmakers are expected to approve legislation today to repeal an Internal Revenue Service plan to withhold 3 percent of payments to contractors at every level of government.
The withholding tax was designed to go after contractors who were delinquent on their taxes, but lobbyists say it is burdensome to taxpayers and an example of government overreach, according to The Hill.
Once the measure moves through the House, it is expected to gain steam in the Senate. Last week, 57 senators voted for an appeal, just three votes short of what was needed for passage.
Implementation of the tax has been delayed more than once since it was created in 2006. The 2009 stimulus packaged pushed it to 2012; and last May, the IRS delayed it until 2013.
Lost revenue from withholding tax repeal will be offset by legislation sponsored by Representative Diane Black (R-Tenn.) that sets strict limits on Medicaid eligibility, a move that was recommended by the President to the supercommittee, according to The Hill.
Lawmakers who were in favor of the tax fear that repeal means more avenues for government contractors to cheat tax obligations. Reportedly, they are calling for other measures to enforce tax codes in the absence of the withholding tax.