2011

    Press Release


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    Contact(s):

    Shirley Twillman
    stwillman@aicpa.org
    202.434.9220

    AICPA Supports Repeal of 3 Percent Withholding Requirement 

    Published October 11, 2011

    Washington (Oct. 11, 2011) – The American Institute of Certified Public Accountants on Oct. 10 supported repeal of the requirement that generally requires federal, state and local governments to withhold 3 percent on payments made to government contractors, as well as certain other payments such as Medicare.

    “We strongly support H.R. 674,” which would repeal the 3 percent withholding requirement Congress passed in 2005 as part of the Tax Increase Prevention and Reconciliation Act, Patricia Thompson, chair of the AICPA Tax Executive Committee, said in her letter to members of the House Ways and Means Committee.

    “Our CPA members who provide services to state and local governments are hearing that these governmental entities consider the 3 percent withholding law to be an unfunded mandate, forcing them to incur a costly reprogramming of their accounting and procurement systems during difficult economic times,” she said.

    “Moreover, in the absence of repeal, the withholding law will likely have a pronounced (but negative) impact on government contractors with low profit margins, potentially threatening their operations due to a tightening of cash flow,” Thompson said.  “Our members have also heard from clients that the withholding law will have a negative impact from a Medicare payment perspective on physicians, nurses, medical support staff, and hospital administrators.  We emphasize this latter point, particularly since we are not aware of any data suggesting that medical professionals (in general) are a compliance risk with respect to their payment of federal income taxes, considered the fundamental reason for imposing a withholding regime.”

    The withholding requirement has been delayed twice.  Congress delayed the effective date of the provision in 2009 from Jan. 1, 2011 to Jan. 1, 2012, and the Internal Revenue Service issued final regulations on May 9 that included a further one-year delay in the effective date until Jan. 1, 2013.  President Obama included a provision in his American Jobs Act of 2011 that would delay implementation until 2014.

    H.R. 674 was introduced by Representative Wally Herger, who is a Republican from California and a member of the House Ways and Means Committee.  The bill has 262 co-sponsors and may be considered by the Ways and Means Committee this week.

    The AICPA’s letter is pasted below.

    For more information or to speak to someone about the letter, contact Shirley Twillman at stwillman@aicpa.org or at 202.434.9220.



    October 10, 2011


    The Honorable Dave Camp
    Chairman
    Committee on Ways and Means
    U.S. House of Representatives
    1102 Longworth House Office Building
    Washington, DC  20515
    The Honorable Sander M. Levin
    Ranking Member
    Committee on Ways and Means
    U.S. House of Representatives
    1139E Longworth House Office Building
    Washington, DC  20515


    Dear Chairman Camp and Ranking Member Levin:

    On behalf of the 377,000 members of the American Institute of Certified Public Accountants, I am writing to express our support for H.R. 674, introduced by Representative Wally Herger.  H.R. 674 repeals the Internal Revenue Code provision requiring federal, state, and local governments generally to withhold 3 percent on payments made to government contractors, and for Medicare, farm, and certain other payments.  The 3 percent withholding law will become effective on January 1, 2013 in the absence of repeal.

    Our CPA members who provide services to state and local governments are hearing that these governmental entities consider the 3 percent withholding law to be an unfunded mandate, forcing them to incur a costly reprograming of their accounting and procurement systems during difficult economic times.  Moreover, in the absence of repeal, the withholding law will likely have a pronounced (but negative) impact on government contractors with low profit margins, potentially threatening their operations due to a tightening of cash flow.  Our members have also heard from clients that the withholding law will have a negative impact from a Medicare payment perspective on physicians, nurses, medical support staff, and hospital administrators.  We emphasize this latter point, particularly since we are not aware of any data suggesting that medical professionals (in general) are a compliance risk with respect to their payment of federal income taxes, considered the fundamental reason for imposing a withholding regime.

    For the reasons stated above, we strongly support H.R. 674. 

    Sincerely,


    Patricia A. Thompson, CPA
    Chair, AICPA Tax Executive Committee

    cc:     House Ways and Means Committee Members

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