What This Bill Does
This bill would require certain large businesses to withhold payroll taxes from payments made to independent contractors. In practical terms, it would shift some tax collection responsibility from individual contractors to the businesses that hire them, with the goal of improving compliance and reducing underpayment. The measure is aimed at contractors working for larger firms, rather than all self-employed workers. By changing how taxes are collected, it could affect take-home pay, cash flow, and year-end tax filing for affected contractors.
- Requires payroll tax withholding on payments to independent contractors of certain large businesses.
- Applies to the business paying the contractor, not just the contractor at tax time.
- Amends the Internal Revenue Code of 1986.
- Referred to the House Committee on Ways and Means on June 2, 2026.
- Sponsored by Rep. Bonnie Watson Coleman (D-NJ) and has 7 cosponsors.
Who This Bill Affects
For contractors who work with large businesses, this could mean less money in each payment because taxes would be withheld up front instead of being paid later. That may reduce the chance of a surprise tax bill at filing time, but it also lowers immediate cash flow. Large businesses that use independent contractors would need to adjust payroll or payment systems to handle the withholding requirement.
See how this bill affects you — sign in for a personalized analysisWho Supports & Opposes This
- Independent contractors who struggle with quarterly tax payments Automatic withholding can help prevent underpayment and reduce the risk of penalties or a large tax bill at the end of the year. It makes tax compliance more predictable for workers whose income fluctuates.
- Tax compliance advocates Withholding at the source is one of the most effective ways to improve collection. Requiring large businesses to withhold taxes from contractor payments could reduce evasion and close gaps in the current system.
- Workers in industries with frequent contractor misclassification concerns A withholding rule can create a clearer tax trail and make it harder for businesses to shift tax responsibility entirely onto workers. That can improve fairness in sectors where contractor arrangements are common.
- Large businesses that hire many contractors The bill would add administrative costs and compliance burdens, especially for firms that pay large numbers of freelancers or gig workers. Businesses may need to redesign payment systems and manage new reporting obligations.
- Independent contractors who depend on regular cash flow Withholding reduces the amount paid out immediately, which can be difficult for contractors who rely on every invoice to cover operating expenses. Some may prefer to manage their own estimated taxes rather than have money withheld automatically.
- Small-business advocates concerned about spillover effects Even if the rule targets only certain large businesses, it could encourage broader withholding expectations and create confusion about who counts as a contractor versus an employee. That uncertainty can make hiring and contracting arrangements more complicated.
Key Implications
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““require payroll tax withholding on independent contractors””
This means a portion of contractor payments would be sent to the government before the contractor receives the full amount. In practice, it shifts tax collection earlier in the year and reduces the need for contractors to make separate estimated payments.
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““certain large businesses””
The rule is aimed at contractors paid by larger firms, not every person who works independently. That creates a size-based threshold that would determine which businesses must comply.
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““amend the Internal Revenue Code of 1986””
This would change federal tax law rather than create a new grant or program. The main effect would be on how taxes are collected and reported for covered contractor payments.
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““withholding on independent contractors””
Independent contractors are normally paid without employer-style withholding. This provision would bring part of that system closer to wage withholding for the covered group.
Latest Status
June 2, 2026
Referred to the House Committee on Ways and Means.
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Ask AI about this billData sourced from api.congress.gov.