Taxpayers receiving various types of income may have a backup withholding deducted from these payments. Backup withholdings typically apply to most payments that were reported on certain Forms 1099 and W-2G.
Optima Tax Relief reviews helpful facts taxpayers can use in order to understand their backup withholding.
Backup Withholdings are typically required on certain non-payroll amounts when certain conditions apply
Payers making payments to the payee typically don’t withhold taxes and the payees will most likely pay taxes on this income when they file their federal tax return. There are certain situations when the payer is required to withhold a certain percentage of tax in order to ensure the IRS receives the taxes that due based on income.
Is there a specific percentage that is set with a backup withholding?
The current percentage for a backup withholding is at 24 percent.
Payments that are most likely subject to backup withholding include:
- Interest payments
- Payment card and third-party network transactions
- Patronage dividends, only if at least half the payment is in money
- Rents, profits or other gains
- Commissions, fees or other payments for work done as an independent contractor
- Payments by brokers
- Barter exchanges
- Payments by fishing boat operators. Only the part that is paid in actual money and that represents a shore of the proceeds of the catch
- Royalty payments
- Gambling winnings, if not subject to gambling withholding
- Taxable grants
- Agriculture payments
Examples when a payer must deduct backup withholdings:
- The payee has failed to provide the payer with a Taxpayer Identification Number (TIN).
- A TIN must specifically identify the payee.
- TINs must include Social Security numbers, Employer Identification Numbers, Individual Taxpayer Identification Numbers and Adoption Taxpayer Identification Numbers.
- If the IRS notifies the payer that the payee provided the incorrect TIN it could be because the TIN does not match the name in their records. Payees should verify that the payer has their correct name and TIN in order to avoid backup withholding.