Senate Approves Bill Repealing 3% Withholding, Tax Breaks For Vet Hires

Senate lawmakers on November 10 voted 95 to 0 to approve legislation (HR 674) repealing the 3% withholding tax imposed on federal contractors. The measure includes a Democratic amendment, the VOW to Hire Heroes Bill, which provides tax credits for employers who hire military veterans and increases existing tax credits for companies that hire veterans with service-connected disabilities.

The Joint Committee on Taxation estimated the withholding tax repeal would cost $11.2 billion over 10 years, with the cost offset by changing the calculation of modified adjusted gross income in determining eligibility for some health care credits, including Medicaid, and the Children's Health Insurance Program. The 3% withholding tax was imposed six years ago on federal contractors to crack down on tax avoidance as part of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222).

The VOW to Hire Heroes Bill of 2011 offers a tax credit of up to $5,600 for hiring veterans who have been looking for a job for more than six months, as well as a $2,400 credit for veterans who are unemployed for more than four weeks, but less than six months. In addition, the measure calls for a tax credit of up to $9,600 for hiring veterans with service-connected disabilities who have been looking for a job for more than six months. It also provides expanded training and education opportunities for all veterans. The $1.6-billion cost of the legislation is offset by delaying scheduled fee reductions on mortgage applications for loans guaranteed by the Department of Veterans Affairs.

The veterans measure is the first portion of President Obama's failed jobs package, the American Jobs Bill, to receive full bipartisan support in the Senate. The House approved repeal of the 3% withholding tax measure by a 405-to-16 vote on October 27, but Senate changes and addition of the VOW to Hire Heroes Bill will require House lawmakers to hold a vote on the revised legislation if the measure is to advance to the president's desk.

President Obama, in a written statement, said "Republicans and Democrats in the Senate did the right thing and passed tax credits that will encourage businesses to hire America's veterans." The president urged the House to pass the bill so he can sign it into law and to pass additional jobs proposals in the weeks ahead.