Tax Tip 2022-93: Fast facts to helps taxpayers understand backup withholding

From: IRS Nov-24-2021 11:38:am

IRS Tax Tips

June 16, 2022

Issue Number: Tax Tip 2022-93

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Fast facts to helps taxpayers understand backup withholding

Under the tax law, payers responsible for knowing who they are paying. To accomplish this, payers are required to collect the legal name and taxpayer identification number, or TIN, from vendors they pay. Generally, backup withholding is required when a service vendor does not provide the payer their TIN timely or accurately. This type of withholding can apply to most payments reported on certain Forms 1099 and W-2G.

Here’s what taxpayers need to know about backup withholding.

Backup withholding is required on certain non-payroll amounts when certain conditions apply.

The payer making such payments to the payee doesn't generally withhold taxes, and the payees report and pay taxes on this income when they file their federal tax returns. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income.

Backup withholding is set at a specific percentage.

The current rate is 24 percent.

Payments subject to backup withholding include:

Interest payments
Dividends
Payment card and third-party network transactions
Patronage dividends, but 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, but only the part that is paid in actual money and that represents a share of the proceeds of the catch
Royalty payments
Gambling winnings, if not subject to gambling withholding
Taxable grants
Agriculture payments

Examples when the payer must deduct backup withholding:

If a payee has not provided the payer a Taxpayer Identification Number.
- A TIN specifically identifies the payee.
- TINs include Social Security numbers, Employer Identification Numbers, Individual Taxpayer Identification Numbers and Adoption Taxpayer Identification Numbers.
If the IRS notified the payer that the payee provided an incorrect TIN; that is the TIN does not match the name in IRS records. Payees should make sure that the payer has their correct name and TIN to avoid backup withholding.

More information:
Backup Withholding "B" Program
Publication 1281, Backup Withholding for Missing and Incorrect Name/TINs

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Tax Tip 2022-93: Fast facts to helps taxpayers understand backup withholding

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