President Obama signed into law Monday a bill that provides tax credits for hiring veterans and repeals a 3 percent tax withholding requirement on government contractors.

The bill was passed with overwhelming support Wednesday by the House after earlier approval by the Senate (see Congress Passes 3% Withholding Repeal and Vet Jobs Tax Credits). Both provisions had been part of Obama's jobs bill, the American Jobs Act, but had originated in bills with bipartisan support.

"Back in September, I sent Congress a jobs bill," said Obama. "And in it, I proposed a tax credit for any business that hires a veteran who’s been unemployed for at least four weeks. I proposed an even bigger tax break if a business hires a veteran who’s been unemployed for at least six months. And if a business hires an unemployed veteran with a disability related to their service, I proposed doubling the tax break that we already have in place. Today, because Democrats and Republicans came together, I’m proud to sign those proposals into law. And I urge every business owner out there who’s hiring to hire a veteran right away."

“No veteran returning home from fighting for our country and looking for work should be greeted with an unemployment check instead of a job,” said Senate Finance Committee Chairman Max Baucus, D-Mont., who had introduced previous bills to provide tax credits for hiring veterans with his colleague on the Finance Committee, Charles Grassley, R-Iowa.  “Our veterans’ service earns them the right to a steady job when they return home, but unemployment among vets is at crisis levels. This tax credit will help solve the unemployment crisis and help veterans find work.  Our veterans return home with unmatched leadership skills and motivation, making them valuable to businesses looking to hire.  There’s more work to be done cutting red tape and making the process of claiming this credit easier, but this is an important start.”

The veterans jobs bill signed into law Monday includes a version of Baucus’s tax credit for businesses that hire unemployed veterans.  The legislation will provide a $5,600 tax credit for hiring long-term unemployed veterans who have been unemployed for six months or longer in the past year, $2,400 for hiring short-term unemployed veterans who have been unemployed for between four weeks and six months in the past year, $4,800 for service disabled veterans hired within one year of being discharged, and credits of up to $9,600 for hiring veterans with service-related disabilities who have been unemployed for six months or longer in the past year. CCH has issued a new tax briefing describing the legislation.

Baucus worked closely with the Iraq and Afghanistan Veterans of America to craft this legislation.  The IAVA, the Veterans of Foreign Wars and other veteran service organizations are strong supporters of the legislation.

Baucus’s original VETs Jobs bill also included provisions to simplify the certification process to make it easier for businesses to get the tax credit.  Baucus said he would continue working to cut red tape to make it easier for businesses to get the credit for hiring veterans.

House Ways and Means Committee Chairman Dave Camp, R-Mich., also hailed the signing of the law, which repeals a 3 percent withholding requirement on certain payments made to vendors and contractors by government entities. This repeal had been lobbied for by the American Institute of CPAs and other business groups.

Under the Tax Increase Prevention and Reconciliation Act of 2005, a 3 percent withholding requirement had been placed on governmnent contractors and others providing goods and services to federal, state and local government entities in order to discourage tax evasion by government contractors. The withholding requirement never took effect, however, and had been delayed by the American Recovery and Reinvestment Act of 2009 and by the IRS in May of this year.

“We’re pleased that it was repealed,” said AIPCA vice president of taxation Ed Karl. “It’s a recognition by Congress and the [Obama] administration that it may have made sense five or six years ago when they originally enacted this, [but not] in today’s economic environment where small businesses are struggling.”

He pointed to the broad nature of the withholding provision. “It wasn’t specifically targeted to somebody who had a compliance problem, but it applied to everybody,” said Karl, pointing out that the withholding requirement could also apply to farmers and the medical community. “It just no longer was valid in today’s environment, and they sought to repeal it,” he said.

The legislation modifies the definition of adjusted gross income used to determine eligibility for certain health programs such as Medicaid in the health care reform law in order to help pay for the $12.8 billion cost of the bill. 

"I am pleased the President is signing into law another pro-jobs bill the Ways and Means Committee shepherded through Congress,” Camp said in a statement. “Like the 1099 reporting provision repeal, these are ideas that both parties and the Administration have supported and will provide job creators with more certainty, while also reducing the deficit. I commend Committee Members Wally Herger and Diane Black for the hard work they put into their respective bills.”