Published December 8, 2011

Three Percent Withholding Repeal and Job Creation Act of 2011

President Obama recently signed the Three Percent Withholding Repeal and Job Creation Act. The new law (1) repeals the three percent withholding on government contractors and (2) expands tax incentives to encourage employers to hire military veterans.

1. The Tax Increase Prevention and Reconciliation Act of 2005 enacted a three percent government-withholding requirement on certain payments to government contractors and others providing property or services. The three percent government withholding initially had been scheduled to apply to payments made after December 31, 2010. Implementation, however, was delayed by one year by the American Recovery and Reinvestment Act of 2009. The IRS further delayed the implementation until January 1, 2011. Repeal of the three percent government withholding requirement is effective for payments made after December 31, 2011.

2. The Work Opportunity Tax Credit (WOTC) rewards employers with a tax credit for hiring individuals from targeted groups. The WOTC was extended by the 2010 Tax Relief Act through the end of 2011.

The newly signed 2011 Job Creation Act enhances the WOTC by creating the Returning Heroes Tax Credit and the Wounded Warriors Tax Credit:

* Employers that hire veterans who have been looking for employment for more than 6 months may be eligible for a Returning Heroes Tax Credit of up to $5,600 per employee; employers that hire veterans who have been looking for employment for less than six months may be eligible for a credit of up to $2,400 per employee.
* Employers that hire veterans with service-connected disabilities who have been looking for employment for more than six months may be eligible for a Wounded Warriors Tax Credit of up to $9,600 per employee.

The Returning Heroes and Wounded Warriors tax credits apply to individuals who begin work for the employer after November 21, 2011, and are scheduled to expire after December 31, 2012.

The Returning Heroes Tax Credit and the Wounded Warriors Tax Credit are available to tax-exempt organizations. For a tax-exempt organization to qualify for either credit, the newly hired veteran must be employed in a position that furthers the entity s exempt purpose.

If you would like to discuss the impact of this new legislation on you or your business, please contact the expert listed below at PYA, (800) 270-9629.

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