For-profit health care entities such as physician practices and hospitals may

soon see their Medicare payments subject to a 3% withholding for taxes. On

December 5, 2008, the IRS issued a proposed rule to implement a tax

withholding requirement of section 511 of the Tax Increase Prevention and

Reconciliation Act of 2005 (Section 511). Under Section 511, payments by

government entities (including federal, state and local government) are subject

to a 3% income tax withholding. The American Recovery and Reinvestment

Act of 2009, signed by President Obama on February 17, 2009, delays

implementation of Section 511 for one year, so it is now slated to apply to

payments made after December 31, 2011. Ober|Kaler's Alan J. Arville explains.