![]() This can include providing the correct TIN to the Payer, resolving the underreported income, and paying the amount owed, or filing the missing tax return(s). Taxpayers need to correct the reason why they became subject to backup withholding. Distributions from an employee stock ownership plan.Distributions from any retirement account.What payments are “excluded” from backup withholding? Certain Government Payments, Form 1099-G.Original issue discount reportable on (Form 1099-OID), Original Issue Discount, if the payment is in cash.Gambling winnings (Form W-2G) may also be subject to backup withholding.Payments by fishing boat operators, but only the part that is in money and that represents a share of the proceeds of the catch (Form 1099-MISC).Payments by brokers/barter exchanges (Form 1099-B).Commissions, fees, or other payments for work you do as an independent contractor (Form 1099-MISC).Rents, profits, or other gains (Form 1099-MISC).Patronage dividends, but only if at least half the payment is in money (Form 1099-PATR).Payment Card and Third-Party Network Transactions (Form 1099-K). ![]() What payments are subject to backup withholding? There are some other situations where you must begin backup withholding, but this is the most straightforward example. The current rate that must be withheld from their pay is 24 percent – at least until the issue is sorted out. If there is a problem with the TIN or Social Security Number (SSN) on the W9 that the consultant provided, you must begin backup withholding. If you are a business that paid a freelancer more than $600 in the last year, you are required to fill out a 1099-MISC form. Since independent contractors typically handle their own taxes, businesses don’t generally withhold taxes from their payments. IRS Tax Tip 2021-85 released on June 15, 2021, explains (in typically complex language) the concept of backup withholding. Sometimes, a freelancer failing to check theW-9 box certifying that he/she is not subject to Backup Withholding can generate this tax. So can underreported or misreported interest or dividend income on a federal tax return. Small mistakes can cost big tax penalties The IRS requires both businesses and individual taxpayers to know when they are required to start backup withholding what kinds of income are subject to it and when it’s okay to stop paying. In simplest terms, 24 percent backup withholding is demanded of both payers and payees who either mistakenly or intentionally supply incorrect or incomplete information about 1099 or W2-G income. That’s especially true with Federal backup withholding taxes. When it comes to taxes, mistakes can cost you more than money.
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