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President Signs Three Percent Withholding Repeal and Job Creation Act and VOW to Hire Heroes Act

TaxAlerts Tax Article

December 2011 | Written by: Karen Reed, EA

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On Monday, November 21st, President Obama signed into law the Three Percent Withholding Repeal and Job Creation Act, and the VOW to Hire Heroes Act. The new legislation permanently repeals the three percent withholding requirement on government payments to contractors and adds new tax credits for hiring military veterans. The IRS’s levy authority over payments to federal vendors is expanded, and increased information exchange between the IRS and the Department of Veterans Affairs has been authorized.

Three Percent Withholding Repeal

The Tax Increase Prevention and Reconciliation Act of 2005 enacted a mandatory withholding of three percent on payments made to contractors by federal, state and local governments after December 31, 2012. The regulation would have been burdensome to businesses and governments and has been permanently repealed.

Repeal of this provision will cost an estimated 12.8 billion in revenue. As an offset, the bill includes a revision of the definition of modified adjusted gross income for the purposes of determining eligibility for the health insurance premium assistance credit.

Returning Heroes Tax Credit and Wounded Warriors Tax Credit

Part of Obama’s American Jobs Act, the VOW to Hire Heroes Act enhances the existing Work Opportunity Tax incentives for hiring veterans with two new credits. The Returning Heroes Tax Credit rewards employers with credits of up to $5,600 for hiring job–seeking veterans. A Wounded Warrior Tax Credit of up to $9,600 is available to employers hiring veterans with service–connected disabilities who have been looking for work for more than six months.

IRS Levies

The new law expands IRS levy authority with respect to payments made to federal vendors with unpaid tax liabilities. Such vendors will be subject to continuous IRS levies against 100% of any payment due them from the federal government, including payments due for good or services sold or leased.

Non-tax Initiatives

A number of non–tax initiatives have been enacted that are aimed at making it easier for soldiers to transition back into the civilian workplace. The new programs include career counseling, education and training and are expected to reduce the high jobless rate for post 9/11 veterans.