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Business and Policy Areas
Business and Policy Areas

IRS Exempts Credit Card Transactions from Three Percent Withholding Requirement

January 12, 2011

A provision enacted as part of a 2006 tax measure requires governmental entities, including public colleges and universities, to withhold three percent on payments for goods and services, beginning January 1, 2012.  IRS Notice 2010-91clarifies that the requirement will not apply to payments made via credit cards, for at least 18 months from the date that further guidance is issued, and therefore will not apply to transactions during the 2012 calendar year.

Section 3402(t) of the Internal Revenue Code was added by §511 of the Tax Increase Prevention and Reconciliation Act of 2005, enacted in May 2006.  While implementation of Section 3402(t) has been delayed, Treasury and IRS are currently developing final rules as the January 1, 2012, effective date approaches. 

NACUBO's April 2008 comments to IRS on the implementation of Section 3402(t) explained the administrative difficulties inherent with application of the withholding requirement to payment card transactions and strongly recommended their exemption.

Notice 2010-91 makes it clear that purchases made using payment cards or stored value cards will be exempted.  However, the exemption does not apply to purchases with convenience checks. The notice includes definitions for "credit card transactions" along with other terms such as payment and stored value cards. 


Mary Bachinger
Director, Tax Policy