3% Withholding Hurts YOU!

Published: February 16, 2010

Fast-Growing Coalition Opposing Independent Contractor Withholding

(February 16, 2010) Spearheaded by the California Chamber of Commerce, the coalition opposing a proposal to require businesses to withhold 3 percent of payments to independent contractors is growing rapidly.

In just days after inviting CalChamber members via e-mail to sign onto the opposition coalition, the list of opposing organizations and companies more than quadrupled, topping 800 entities from throughout the state.

Other business and industry associations also are actively participating in an intensive effort to educate legislators that independent contractor withholding will harm millions of companies and agencies, kill jobs and hurt the California economy.

Onerous Mandate

The coalition is warning that independent contractor withholding places a maximum burden on businesses for a minimal return. It will amount to an interest-free loan to the state from small businesses—an onerous, never-ending mandate that is a one-time money-grab. It will not yield new revenue, but merely accelerate income tax payments already owed or bring in monies that will have to be refunded to businesses that don’t owe any income tax.

The Senate Budget Committee was poised to vote on a budget package that included independent contractor withholding. The idea seems appealing to lawmakers who mistakenly believe it can help address the state’s chronic budget deficit.

Who Must Withhold?

Companies, non-profit organizations and local and state agencies all would be required to implement the withholding, the coalition is pointing out in a one-page fact sheet being circulated widely.

Who Will See Money Withheld?

Independent contractors are self-employed individuals and businesses, ranging from small businesses and entrepreneurs to large firms.

Examples of operations that will see money withheld from payments to them include: builders, painters, plumbers, real estate agents, insurance agents, computer programmers, accountants, automotive mechanics, attorneys, doctors and other health care providers, engineers, gardeners, janitors, security guards and entertainers.

As businesses, independent contractors pay more kinds of taxes than employees, such as self-employment taxes and local business taxes; pay income taxes throughout the year through quarterly estimated tax payments; and are subject to penalties for not paying or underpaying.

Because of recent budget agreements, independent contractors already must pay 70 percent of their taxes by June of each year for the next two years.

Threatens Small Business

In a year when the Governor and legislative leaders have indicated that “jobs, jobs, jobs” is a top priority, independent contractor withholding will destroy rather than create California jobs.
CalChamber opposition to independent contractor withholding is based on the following:

  • Independent contractors already have a greater tax burden than employees;
  • Withholding will wrongly force small businesses to loan money to the state, interest-free;
  • Withholding could generate little if any new revenue for the state; and
  • Withholding targets the wrong group of taxpayers—taxpayers who are already compliant. These taxpayers already are providing the state information it can use to target independent contractors who aren’t paying income taxes they owe.
Action Needed

The CalChamber is urging members to call or write their legislators to voice opposition to independent contractor withholding.

Business people can find a fact sheet and sample letter, or look up their legislators or legislators’ telephone numbers at www.calchambervotes.com.

Last modified: February 16, 2010 at 10:17 am | Originally published: February 16, 2010 at 10:17 am
Printed: September 22, 2020