Senate Votes 3% Withholding Repeal; Veteran Tax Credit Attached

CompTIA consistently has called for repeal of the 3% federal tax withholding on government contracts.  Finally, the Senate has acted, passing H.R. 674 by a vote of 95-0.  This follows overwhelming passage by the House on October 27.  However, the bill must now return to the House for a vote, as an amendment (which passed by a 94-1 vote) was added to the original House version that would: Provide tax credits for veterans hiring; Require a Treasury study of tax delinquency among federal contractor ...
CompTIA consistently has called for repeal of the 3% federal tax withholding on government contracts.  Finally, the Senate has acted, passing H.R. 674 by a vote of 95-0.  This follows overwhelming passage by the House on October 27.  However, the bill must now return to the House for a vote, as an amendment (which passed by a 94-1 vote) was added to the original House version that would:

  • Provide tax credits for veterans hiring;

  • Require a Treasury study of tax delinquency among federal contractors; and

  • Enact a technical clarification about the application of the existing federal levy program.


The veteran tax credit would allow a tax credit as much as $5,600 for a business that hires an unemployed veteran.  Businesses also could receive a tax credit as much as $9,600 for hiring out-of-work veterans with service-related disabilities.

Finally, it seems that Congress has found a way to agree on some bi-partisan issues, and this is hopeful.  We now expect the House will pass the Senate version of H.R. 674, and that this will be signed into law by the President.

The 3% withholding provision was slipped into legislation enacted in 2006 without notice or vetting.  It was immediately criticized by the business community and many Members of Congress, alike.  However, it proved difficult to undo because of the $7 billion in revenue (over 10 years) it was estimated to raise.

This withholding provision acted more as a penalty, because it was not tied to anticipated taxable income.  Indeed, a small business working under a government contract with a slim profit margin actually could experience a net loss for the tax year; even so, that business would have been subjected to the three-percent withholding.

Repeal has been five years in the making.  Like the hated 1099 filing requirement that was repealed earlier this year, Congress should avoid imposing unnecessary and costly compliance requirements on businesses, which disproportionately affect small businesses.

Email us at blogeditor@comptia.org for inquiries related to contributed articles, link building and other web content needs.

Read More from the CompTIA Blog

Leave a Comment