IRS Delays Enforcement of 5% Withhold Rule
June 16, 2011 – The IRS has suspended enforcement of the 3% withhold rule until January 1, 2013. This rule was originally enacted as part of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) requiring all federal agencies withhold an amount equivalent to 3% of federal payments made to individuals or corporations providing services to the federal government, including Medicare. The revenues collected would be held by the Treasury Department to be applied against a future tax liability that might be incurred by this taxpayer.
This law was enacted in 2005 but has been delayed by Congress several times. The government agency will be required to withhold the 3% on payments in excess of $10,000 and applies the withhold on a payment-by-payment basis. Thus, if a government entity makes a single payment of $10,000 or more on multiple items or services, the entity must withhold the 3% of the payment. However, the IRS is adopting certain “anti-abuse” policies to prevent any agency from dividing payments into multiple payments less than $10,000 to avoid the threshold.
Health care organizations are actively encouraging Congress to either repeal this law entirely or, at a minimum, repeal this law as it relates to Medicare payments. Several bills have been introduced in Congress to repeal the 3% withhold, but none have been voted on by Congress.
Tags: CMS Updates
