IRS Delays Enforcement Of 3% Withhold Rule

Medicare to begin withholding IRS taxes in 2013

May 31, 2011
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The Internal Revenue Service has announced that it will suspend enforcement of the 3-percent withhold rule until January 1, 2013. Originally enacted as part of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), this law requires all federal agencies withhold an amount equivalent to 3 percent of the federal payments made to individuals or corporations providing services to the federal government (including Medicare). The revenues collected through this withhold would 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. Now that has been delayed until 2013.

The IRS is adopting a $10,000 threshold for the 3-percent withhold meaning that the government agency (or its contractor) will only be required to withhold the 3 percent on payments in excess of $10,000. The $10,000 threshold applies on a payment-by-payment basis; therefore, if a government entity makes a single payment of $10,000 or more for multiple items or services, the entity must withhold 3 percent of the payment.

For Medicare, this means that if a physician's practice bills Medicare $3,000 each day for five days for services provided to Medicare beneficiaries during those days, and the Medicare contractor makes a single payment of $15,000 ($3,000 X 5 days), the payment threshold applies to the $15,000 payment. If, however, the Medicare contractor remits a daily payment to the provider (i.e. $3,000 per day) these multiple payments to the practice will generally not be aggregated in applying the $10,000 threshold. Because each payment was less than the $10,000 threshold, there would be no withholding.

Anti-abuse policies to go into effect.

Finally, it should be noted that the IRS is adopting certain "anti-abuse" policies to prevent an agency from dividing payments into multiple payments to avoid the threshold. For example, if a government contractor (MAC, FI, etc.) is scheduled to make a payment to a provider of Medicare services in the amount of $15,000 for services on July 2, 2013, but divides the payment into payments of $7,000 on July 1, 2013, and $8,000 on July 2, 2013, respectively, to avoid withholding, the government entity will be treated as having made a single payment of $15,000 on July 1, 2013.

The Healthcare Billing & Management Association (HBMA) and other organizations are actively encouraging Congress to either repeal this law entirely or, at a minimum, repeal this law as it relates to Medicare payments. Several bills have been introduced in Congress to repeal the 3-percent withhold but to date, none have been voted on by Congress.

A non-profit, member-led trade association, the Healthcare Billing & Management Association (HBMA) represents more than 30,000 employees at well over 700 third-party medical billing firms. Annually, HBMA companies submit more than 350 million initial claims on behalf of hospital-based physicians, office-based physicians and other allied healthcare providers. Founded in 1993, HBMA and its members foster personal development, advocate on the behalf of the profession, and promote cooperation through a wide range of business resources, educational events, networking opportunities, certification programs and adherence to the Medical Biller’s Code of Ethics. As the only trade association representing the interests of medical billers in Washington D.C., HBMA works with legislative stakeholders and federal agencies to improve the business of medical billing and the practice of healthcare. Learn more about how HBMA is elevating the medical billing profession at
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