IRS Postpones Contractor Tax Withholding The Internal Revenue Service is delaying for one year the requirement that taxes be withheld from payments to contractors. The new effective date is Jan. 1, 2013, according to the IRS announcement in the May 9 Federal Register. For the first year the 3% withholding requirement will apply only to contracts awarded after the effective date, unless an older contract was substantially modified. In 2014 withholding would begin on all contracts. Most business groups have called for repeal of the requirement. Many state and local governments oppose it, because they would also be required to withhold taxes from their contractors. The Professional Services Council, a contractor group, said, “The withholding requirement would significantly reduce companies’ cash flow at a time when the current economic environment is already squeezing their ability to meet operating expenses.” The council said other regulations are sufficient to ensure that contractors pay their taxes. At least three repeal measures have been introduced in Congress. The hangup has been that the withholding provision was designed to increase tax revenues, and some members of Congress say repeal would have to be offset by finding new revenue from another source. “The primary goal of this Congress should be removing barriers for job creation by restoring fiscal discipline, lowering taxes and removing burdensome regulations,” said Rep. Sam Graves, R-MO, chairman of the House Small Business Committee. “Getting rid of this unnecessary withholding requirement is in line with those objectives.” The Small Business Commit-tee’s Contracting and Workforce Subcommittee plans a hearing on the issue later this month.