Yesterday, the House voted to repeal the 3% withholding tax initiative scheduled to go into effect in 2013; it now needs Senate approval, which might be difficult to obtain.
The withholding initiative originated from the Tax Increase Prevention and Reconciliation Act, commonly known as TIPRA, that would require government agencies (except certain small agencies) to withhold 3% in federal tax for each payment made to a merchant for most goods and services beginning in 2013. Section 3402(t) is the corresponding section of the Internal Revenue Code (IRC). When the IRS released final regulations for the code in May 2011, card payments were one of the exceptions. Therefore, TIPRA applies to non-card payments only.