The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), requires all federal agencies to withhold an amount equivalent to 3% of the federal payments made to individuals or corporations providing services to the federal government, including Medicare. The Internal Revenue Service (IRS) has announced that it will further suspend enforcement of the 3% withhold rule until January 1, 2013.
The revenues collected through this withhold will be held by the Treasury Department to be applied against a future tax liability that might be incurred by this taxpayer. Although this law was enacted in 2005, enforcement of the law has been delayed by Congress. Until this most recent announcement by the IRS, the law was slated to take effect on January 1, 2012.
The IRS has adopted a $10,000 threshold for the 3% withhold when the provision becomes enforceable. This means the government will only be required to withhold the 3% on payments in excess of $10,000. The $10,000 threshold applies on a payment-by-payment basis; therefore, if Medicare makes a single payment of $10,000 or more for multiple services, they must withhold 3% of the payment. If Medicare makes a single payment of less than $10,000, there will be no withholding.
ADVOCATE is working with industry leadership to encourage Congress to repeal this legislation.
With best regards,
Kirk Reinitz, CPA
President & CEO