On May 9, the Internal Revenue Services (IRS) published notice (76 FR 26678) of a proposed rule to implement portions of Public Law 109-222 (Tax Increase Prevention and Reconciliation Act of 2005), which was enacted into law on May 17, 2006.  Section 3402(t)(1) of that law provides that the federal government as well as state governments, their political subdivisions and instrumentalities (including local governments and multi-state agencies) making total payments annually of $100 million or more for property and services shall deduct and withhold from such payment a tax in an amount equal to 3 percent of such payment. 

Section 3402(t) is now scheduled to take effect on January 1, 2012.  The IRS’s proposed rule would shift that implementation date to January 1, 2013.  That date would apply to payments on new contracts valued at $10,000 or more that are made after December 31, 2012.  The rule would affect all contracts as of December 31, 2013.  While this is positive news, it does not change business community plans to push ahead with the grassroots campaign and apply greater pressure on this issue.

NOPA is part of a coalition seeking repeal of this 3% income tax withholding requirement before it becomes effective.  The coalition will launch a grassroots campaign in the month of June to educate Congress and compel them to decisively act to repeal the 3% withholding tax.  Currently, the number of cosponsors of the House repeal bill (HR 674) has reached 101 members and the combined total on the two Senate repeal bills (S. 89/S. 164) comes to 16, including the lead sponsors. 

NOPA members are encouraged to voice their concerns to their elected representatives and senators starting next month when this campaign is launched.  NOPA will provide sample letters for this purpose at that time.

For further information concerning the content of this proposed IRS regulation, contact A.G. Kelley, (202) 622–6040; for questions related to submissions of comments or to request a public hearing, contact Oluwafunmilayo Taylor at (202) 622–7180.