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Frequently Asked Questions (FAQs) |
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Questions in 'Backup Withholding' |
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Answers |
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| What payments are subject to backup withholding? |
Rents and commissions, non-employee compensation for services, royalties, reportable gross proceeds paid to attorneys and other fixed or determinable gains, profits, or income payments reportable on Form 1099-MISC, Miscellaneous Income.
Commissions, fees, or other payments for work performed as an independent contractor on Form 1099-NEC, Nonemployee Compensation.
Interest reportable on Form 1099-INT, Interest Income.
Dividends reportable on Form 1099-DIV, Dividends and Distributions.
Patronage dividends paid in money or qualified check reportable on Form 1099-PATR, Taxable Distributions Received From Cooperatives.
Original issue discount reportable on Form 1099-OID, Original Issue Discount, if the payment is in cash.
Gross proceeds reportable on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions.
Gambling winnings reportable on Form W-2G, Certain Gambling Winnings, unless subject to regular gambling withholding. If not subject to regular gambling withholding, backup withholding only applies if, and only if, the payee does not furnish a taxpayer identification number to the payor.
Gross payments reportable on Form 1099-K, Payment Card and Third Party Network Transactions.
Form 1099-G payments that are subject to backup withholding under IRC 6041 and 3406(b)(3)(A) which include taxable grants and agricultural payments.
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| What should I do if a payee refuses or neglects to provide a TIN? |
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Begin backup withholding immediately on any reportable payments. Do the required annual solicitation (request) for the TIN. Backup withhold until you receive a TIN. |
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| In what manner should a payer treat erroneously withheld tax? |
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If a payer withholds from a payee in error or withholds more than the correct amount of tax, the payer may refund the amount improperly withheld. The refund must be made prior to the end of the calendar year and prior to the time the payer issues a Form 1099. If the payer has not deposited the amount of the tax prior to the time that the refund is made to the payee, the payer should not deposit the improperly withheld tax. If the improperly withheld tax has been deposited prior to the time the refund is made to the payee, the payer may adjust any subsequent deposit of tax collected, which the payer is required to make, by the amount of the tax which has been refunded to the payee. Payers may use refund alternatives only when backup withholding is the result of an error by the payer. The timely submission of requested TIN information including any verifications and/or certifications by the payee does not establish an error by the payer. |
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| Can a payee claim he or she is exempt from backup withholding? |
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Yes. Payees who may be exempt are listed in the Instructions for the Requester of Form W-9. They include tax-exempt organizations, government agencies, corporations, and other listed entities. |
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| What should I do if a Form W-9 is returned with incorrect information? |
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Keep the Form W-9 on file to show that the payee certified the Name/TIN combination. Do not backup withhold. Try to contact the payee to request the proper Name/TIN combination. |
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| What is backup withholding? |
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Persons (payers) making certain payments to payees must withhold and pay to the IRS a specified percentage of those payments under certain conditions. Payments that may be subject to backup withholding include interest, dividends, rents, royalties, commissions, non-employee compensation, and other payments including broker proceeds and barter exchange transactions, reportable gross proceeds paid to attorneys, and certain payments made by fishing boat operators. Payments that are excluded from backup withholding are real estate transactions, foreclosures and abandonments, cancelled debts, distributions from Archer Medical Savings Accounts (MSAs), long-term care benefits, distributions from any retirement account, distributions from an employee stock ownership plan (ESOP), fish purchases for cash, unemployment compensation, state or local income tax refunds, and qualified tuition program earnings. |
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