The U.S. Congress passed a law called the Tax Increase Prevention and Reconciliation Act of 2005. Section 511 mandates 3% tax withholding on monies paid to government contractors, effective in 2011.
OK, that is a few years out, but many business people aren’t aware of the law. According to Anita Campbell, many members of Congress aren’t aware they had passed it either. Campbell says,”It applies to companies that do work for Federal, state and local governments. The law affects businesses of all sizes — but it would impact small-business suppliers the most by putting a serious crimp in cash flow,” and she indicates that organizations, including the SBA’s Office of Advocacy are hoping to get the law repealed.