3% Withholding Provision for Contractors

Words: Wally DanielsIn 2006 Congress passed a bill that carried significant tax relief across the board, including an extension of the tax relief on capital gains and dividends and small business expensing. History repeatedly has shown that the American economy grows best when tax rates are low, and small businesses and individuals are able to decide how they spend their own money. This was a good bill, but at the last moment and behind closed doors, a damaging tax increase was added to this tax-relief legislation. This provision, known as 3-Percent Withholding, will impose a withholding tax of 3 percent on all payments to vendors that provide goods and services to governments at any level.

Since so many businesses contract with the government, from farmers who receive payments to contractors who work on government buildings, it will affect significantly small businesses all over the country and will be a job killer. It will impede cash flow for contractors already operating on a tight margin. With the construction industry already suffering from the economic downturn, imposing this additional tax penalty would be devastating.

The 3-percent withholding provision is scheduled to take effect in 2012. Unless it is repealed, it will end up increasing the cost of doing business with governments and, eventually, inflate the cost of goods and services for governments. For these reasons, during both the 110th and 111th Congresses, I have joined Rep. Kendrick Meek (Fla.) in proposing legislation to repeal the 3-percent withholding provision (H.R. 275) before it takes effect.

Together with the MCAA and the larger Government Withholding Relief Coalition, we successfully have added 124 members of the House of Representatives as cosponsors of this bill. We even were able to include it in the House-passed version of the economic stimulus bill earlier this year, but the Senate opted to substitute a one-year delay for full repeal. So, we still need your help in writing letters and contacting your individual members of the U.S. House and Senate.

The supporters of the 3-percent withholding provision argue that it is needed to crack down on contractors who are failing to report their income. However, the vast majority of contracting businesses are owned by honest, hardworking entrepreneurs who are careful to pay their taxes on time. For them, this withholding tax is an incredibly unfair and punitive measure.

This should be a lesson to Congress. There is a hidden danger in seeking ways to increase taxpayer compliance without first addressing the real problem: the sheer complexity of our tax code. While measures like the 3-percent withholding provision may be aimed at tax cheats, they end up hurting honest taxpayers in the process. I am committed to working with Rep. Meek and my fellow members of Congress to repeal this measure, so that we can get back to growing our businesses and creating jobs that are the lifeblood of our economy.
About: Legislative
The Importance of Instructor Support
April 2026

Whether you are a new or veteran masonry instructor, we all need support throughout our careers. We can never stop learning, and keeping up with ever-changing technology, materials, and installation techniques can be overwhelming alongside the everyday pr

Curtis Hoover
Resources
Read More
Vibing Masonry #11: Innovative Concrete Masonry Technologies in Healthcare Design
April 2026

In the high-stakes environment of healthcare design, every material choice is a clinical decision. Architects, engineers, and facility administrators are tasked with creating spaces that are not only resilient and code-compliant but also conducive to heal

Steve Blye
Technical Talks
Read More
Why Termination Bars Still Matter: A Practical Look at Long‑Term Flashing Performance
April 2026

In recent discussions across the masonry industry, I have heard termination bars described as “old school.” The implication is that with modern materials, primerless peel-and-stick flashings, advanced sealants, and structural insulated sheathing, mechanic

Linda Potter
Technical Talks
Read More
Building Solutions: The Critical Role of Cavity Space in Masonry Moisture Control
April 2026

Long before “rainscreen” became a popular term in building science, masonry cavity walls were functioning on that very principle. A brick veneer cavity wall is designed with the expectation that water will penetrate the exterior

Linda Potter
MAP Partner
Read More
Interested in working with us? Learn about and join the Masonry Alliance Program →