Question: How Is Retainage Calculated?

What is retainage amount?

Retainage.

Share: Retainage, also called “retention,” is an amount of money “held back” from a contractor or subcontractor during the term of a construction project.

This is a very unique practice specific to the construction industry, but within the industry, it’s extremely popular..

Can you withhold money from a contractor?

Many contractors ask for half of their payment upfront before they begin a job. … After that, structure the contract so that you pay upon completion of specific chunks of the project. That way, if you reach an impasse over work that hasn’t been done correctly, or at all, you can withhold payment.

How much should a contractor hold back?

The standard hold-back amount is about twice the value of the punch list items. How much retainage? Retainage is typically in the 5% to 10% range, although some contractors will negotiate for a fixed fee or limit.

What is the typical retainage for subcontractors?

Clients withhold retention against main contractors and main contractors withhold payment against sub-contractors. Retentions typically take the form of a percentage on the contract value. The rate can vary wildly but is typically around 5%.

How does Retainage work?

Retainage is the withholding of a portion of the funds that are due to a contractor or subcontractor until the construction project is finished. It is meant to serve as a financial incentive and an assurance that the contractor will complete the project in a satisfactory manner.

How long can Retainage be held?

45 daysRetainage is held until 45 days after formal acceptance of the work. The department shall not retain funds if the contractor furnishes a retainage bond equal to 10 percent of the contract amount for projects less than $500,000 or 5 percent of a contract exceeding $500,000.

What is Project Retainage percentage?

Retainage is the withholding of a portion of each progress payment earned by a contractor or subcontractor until a construction project is complete. Retainage is calculated as a percentage of each progress payment, typically 5% to 10% of the payment.

Is Retainage an asset?

You report retainage on the balance sheet as a current asset.

What is retainage payable?

Retainage Payable is money that you owe to someone else.

What is Retainage on an invoice?

Background. In Procore, the term retainage refers to the practice of withholding of a portion of a contract amount until the work is deemed satisfactorily complete.

Why do contractors fail?

Contractor failure usually is the result of multiple causes. Contractors may default if there are drastic financial changes due to the economy, unforeseen changes in job site conditions, or death or illness of a key employee.

Is Retainage taxable?

The IRS treats amounts as taxable when billed under the accrual method. The Accrual Excluding Retainage Method is allowed to taxpayers with contracts that include retainage. Revenue Ruling 69-314 directs taxpayers to remove retainage receivable from taxable income until jobs are completed and accepted.