TIPRA Three Percent Withholding Regulations Repealed
The House and the Senate have recently passed H.R. 674, a bill that repeals the withholding requirements under Section 3402(t) of the Internal Revenue Code (Code). Originally, Code Section 3402(t) was added by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) to provide that the United States government, every state and political subdivision thereof, and every instrumentality of the foregoing making any payment to a person providing property or services had to deduct and withhold from such payment a tax equal to three percent of the payment. Final regulations regarding the TIPRA withholding and reporting requirements were issued in May, and the TIPRA withholding obligations were set to go into effect for state and local governments beginning in 2013. H.R. 674 repeals the three percent withholding requirement by repealing Code Section 3402(t) in its entirety. The bill has gone to committee to reconcile differences in the two versions of the bill, but it is expected to pass this week, and President Obama has stated he will sign the bill into law.
The passage of H.R. 674 will be seen as good news for most governmental entities, as the three percent withholding requirement might have been difficult for state and local governments to implement. Many entities may not have had the sophisticated systems needed to calculate and report the required data, and the costs associated with purchasing or updating the systems would have been burdensome in light of many governments' current financial situations.
For more information regarding H.R. 674, the repeal of the three percent withholding requirement, and how your governmental entity may be impacted, please contact Mary Beth Braitman, Lisa E. Harrison or the Ice Miller Employee Benefits attorney with whom you work.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.