Construction Retainage in Florida: The Money You Earned but Cannot Spend Yet
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On a $200,000 job with 5% retainage, $10,000 of earned money stays with the owner until the job, or a defined part of it, is finished. You collect $190,000, the $10,000 sits on your balance sheet as an asset you cannot spend, and depending on your accounting method you may already have recognized it as revenue and owe tax on it. Retainage is delayed money rather than lost money, and the delay is the problem: across several jobs it can add up to more than the cash you have on hand. In Florida, how much a public owner may hold and when it must release it are set by statute; on private work, the contract sets both.
What Retainage Is For
Retainage is the part of each progress payment an owner holds back as security that the work will be finished and corrected. A general contractor that is subject to retainage can pass it down, holding back part of each subcontractor’s payment for the same reason. The result is three numbers that separate on every retained job: what the work has earned, what has been billed, and what has been collected. Payroll is paid from the third.
| Earned | Billed | Collected |
|---|---|---|
| Revenue from work performed | Amounts invoiced to the owner | Cash received, net of retainage |
Florida’s Public Retainage Rules
Two statutes cap retainage on public work, one for public entities and one for local governments, with parallel wording.
Public entities. Section 255.078, Florida Statutes says a public entity “may withhold from each progress payment made to the contractor an amount not exceeding 5 percent of the payment as retainage.” It may withhold less, reduce the rate on a schedule in the contract, or release retainage early, and when it pays retainage attributable to subcontractors or suppliers, the contractor “must timely remit payment” to them. The section does not require release of amounts subject to a good faith written dispute, applies the same payment time limits to retainage requests, does not apply to construction services paid in whole or part with federal funds whose requirements conflict with Florida’s prompt payment rules, and does not apply to contracts with a total cost of $200,000 or less.
Local governments. Section 218.735, Florida Statutes, part of the Local Government Prompt Payment Act, contains the same 5% cap for a “local governmental entity” in subsection (8), and it adds a release mechanism in subsection (7):
- The contract must provide for a single list of items needed to complete the work, with the estimated cost of each, developed within 30 calendar days after substantial completion for projects estimated under $10 million, or within 30 days (extendable by contract up to 45) for projects of $10 million or more.
- “Within 20 business days after the list is created,” the local government “must pay the contractor the remaining contract balance that includes all retainage previously withheld,” less “150 percent of the estimated cost to complete the items on the list.”
- Once the listed items are done, the contractor may request the amount withheld. Warranty items and items not on the list “may not affect the final payment of retainage,” and retainage may not be held to secure insurance premiums under a consolidated insurance program.
Dates that decide which version applies. The 5% cap came from chapter 2020-173, Laws of Florida, which took effect October 1, 2020 and does not apply to contracts entered into, pending approval, or advertised for bid on or before that date. Its amendments to section 255.078 do not apply to contracts executed under chapter 337, the transportation contracting chapter. An older public contract may still carry the earlier structure.
Private Projects: The Contract Decides
The statutes above govern public entities and local governments. On a private job, the percentage, any reduction schedule, and the release trigger are whatever the contract says, which makes them negotiable before signing and fixed after. Three terms deserve as much attention as the percentage itself: what event releases retainage (substantial completion, final completion, or the owner’s own release), whether part is released before final completion, and, for a subcontractor, whether release waits for the whole project or follows acceptance of the subcontractor’s own work. A lower rate with a slow release can tie up cash longer than a higher rate released promptly.
The lien waivers that move with payments interact with retainage too. Florida’s statutory progress-payment waiver form in section 713.20(4) excludes retention from what it releases, which is one more reason to sign progress waivers on the statutory form or read any alternative closely.
Retainage on the Books
Keep retainage in its own accounts, separate from trade receivables and payables, on both sides.
Retainage receivable. Under ASC 606, a receivable is a right to consideration that is unconditional, meaning “only the passage of time is required before payment of that consideration is due” (paragraph 606-10-45-4 in ASU 2014-09). Retainage that depends on finishing the work is not yet unconditional, so it is presented as a contract asset until the condition is met, and then as a receivable.
Retainage payable. What you hold back from subcontractors is a liability you will owe when their work is accepted and the release condition in their subcontract is met.
For example, assume a $50,000 progress billing to the owner with 5% retainage, and a $40,000 subcontractor billing in the same period on which you hold back 5%:
| Entry | Account | Debit | Credit |
|---|---|---|---|
| Progress billing to the owner | Accounts receivable | $47,500 | |
| Contract asset, retainage receivable | $2,500 | ||
| Contract revenue | $50,000 | ||
| Subcontractor billing | Job cost, subcontracts | $40,000 | |
| Accounts payable, subcontractor | $38,000 | ||
| Retainage payable | $2,000 | ||
| Owner releases retainage after the condition is met | Cash | $2,500 | |
| Contract asset, retainage receivable | $2,500 |
The entry assumes revenue is recognized as billed for simplicity; on a job reported by percentage of completion, the revenue line comes from the WIP calculation and the billing difference is posted as over or under billing.
The Tax Timing Question
Whether retainage is taxed before you collect it depends on your method. On the cash method, income follows cash, so retainage is taxed when received. On the percentage-of-completion method required for long-term contracts under section 460 of the Internal Revenue Code, income follows the share of estimated costs incurred, not billings or collections, so retainage earned but not yet collected is part of the calculation. Section 460(e) exempts residential construction contracts and the construction contracts of smaller contractors that meet the two-year and gross receipts tests, and for a contractor using another accrual method, when retainage becomes taxable turns on the contract terms. A contractor with significant year-end retainage should settle the timing with a CPA before the year closes, not after.
A Portfolio View
One job’s retainage is easy to absorb. Four together show how it piles up. With hypothetical private contracts that each withhold 10%:
| Job | Contract | Billed to date | Retainage held | Status |
|---|---|---|---|---|
| A. Office build-out | $400,000 | $400,000 | $40,000 | Final punch list |
| B. Retail tenant improvement | $250,000 | $200,000 | $20,000 | Mid-project |
| C. Warehouse | $600,000 | $360,000 | $36,000 | Early |
| D. Restaurant | $300,000 | $300,000 | $30,000 | Awaiting closeout |
That is $126,000 earned and not spendable. Jobs A and D, $70,000 between them, are finished or nearly so and are waiting on punch lists and closeout documents; Job C’s $36,000 will wait longest. A contractor tracking retainage by job can see which release comes first, what document it is waiting on, and how that schedule lines up against payroll in the slow months, which is the job of a cash forecast with retainage on its own line.
Lenders and sureties that review the financial statements read the same accounts. An aging retainage balance raises the question of whether it is waiting on a routine closeout or a dispute, and retainage payable to subcontractors affects working capital. A schedule that ties each balance to a job, a release condition, and an expected date answers that question before it is asked.
Putting the Tracking in Place
- Set up retainage receivable (contract asset) and retainage payable as their own accounts.
- Record retainage on every progress billing and subcontractor billing as it is withheld, not at closeout.
- Note each job’s release condition and expected date from the contract, and for Florida local government work, the punch-list timeline in section 218.735(7).
- Reconcile the balances to the contracts each month, so the percentage on the books matches the percentage in each agreement.
- Release subcontractor retainage against what the subcontract says, and read the payable and receivable for the same job together, so you do not fund a release you have not yet received.
This guide explains Florida construction retainage as general information, not legal, tax, or accounting advice. Retainage terms come from your contract and the statutes change, so confirm the current text and your own treatment with a Florida construction attorney or a CPA before relying on them.