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Three Percent Withholding Repeal and Job Creation Act

On November 21, 2011 President Obama signed into law the Three Percent Withholding Repeal and Job Creation Act (H.R. 674). The Act includes two key tax provisions - the repeal of the soon to be required government withholding and extended and expanded tax incentives for hiring veterans. The enacted law was passed, unanimously, by both the House and Senate.

A three percent government withholding on certain payments to government contractors, and others, has been repealed. The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) provided that government withholding would apply to payments made after December 31, 2010. However, the American Recovery and Reinvestment Act of 2009 delayed implementation of the withholding requirement for one year. Finally, the IRS provided an additional one year delay and withholding would begin for payments made beginning January 1, 2013. The new Act has completely repealed the withholding requirement and is effective for all payments made, beginning January 1, 2012.

The Work Opportunity Tax Credit (WOTC), which was scheduled to expire at the end of 2011, provides tax credit incentives to employers who hire certain targeted individuals. Generally, these individuals included qualified veterans, qualified ex-felons, designated community residents, qualified summer youth employees, qualified food stamp recipients, qualified Supplemental Security Income recipients, among others. The new Act provides two new WOTC credits - the Returning Heroes Tax Credit and the Wounded Warriors Tax Credit. WOTCs for the other, non-veteran individuals will expire at the end of 2011.

A Returning Heroes Tax Credit, up to $5,600 per employee, may apply to employers that hire veterans who have been unemployed for more than six months. In the case where employers hire veterans who have been unemployed for less than six months, the employers may be eligible for a credit up to $2,400 per employee.

The Wounded Warriors Tax Credit provides employers with a tax credit of up to $9,600 per employee. Employers that hire veterans with service connected disabilities, and who have been unemployed for more than six months, may qualify for the credit.

The credits apply to individuals who begin work after November 21, 2011 and the credits are set to expire after December 31, 2012. 

If you have any questions, or would like more information, regarding the Act and its impact to you or your business, please do not hesitate to contact your Alpern Rosenthal representative.

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