What is Backup Withholding?

Backup withholding is federal income tax withheld from payments made to certain nonemployees. The backup withholding rate for 2013 is 28% (same as 2012).

When Backup Withholding Applies

When you hire an independent contractor to perform services for your business and you expect to pay that person $600 or more during the tax year, you should get that person's taxpayer identification number before he/she begins working. If the contractor refuses to provide you with a tax identification number, you are required to withhold backup withholding from such payment(s).

What is a Tax Identification Number?

A tax identification number may be the independent contractor's Social Security number or Federal Employer Identification Number (EIN).

Note that if an independent contractor has employees, he/she is required to have a federal employer tax identification number (EIN).

How to Request a Taxpayer Identification Number

To request a tax identification number from an independent contractor, have the individual complete Form W-9 Request for Taxpayer Identification Number and Certification and return it to you for your records.

How to Report Backup Withholding

Report backup withholding on Form 1099-MISC.

If you paid an independent contractor $600 or more during the tax year and that individual provides you with a tax identification, then no backup withholding is required. However, you still have to report payments of $600 or more made to any independent contractor on Form 1099-MISC.

Corporation

Backup withholding does not apply to individuals operating as a corporation. For example, if you hire an individual to perform services for your business and that individual's business is organized as a corporation, backup withholding does not apply. You should receive a billing statement for your records that shows the name of the corporation.

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