The United States Congress has finally approved a legislation to repeal the 3% withholding tax on payments made to contractors providing services to government entities. The bill was passed in the House of Representatives on a bipartisan vote. When it was first enacted, Congress immediately delayed its implementation for five years until the end of 2011, and then the Internal Revenue Service further delayed payments until after January 1, 2013.
The focus of this repeal was to help close the “tax gap”. But there was no doubt that it would set an extra burden on businesses of all types, especially the small businesses working on thin profit margins, as they are forced to wait until the end of the tax year to recoup the withholding.
Though the repeal of the withholding received support from both the Democrat and Republican parties, but one difference in opinion remained over the method of funding of the revenue shortfall that would be generated as a consequence of this repeal.
