Backup withholding is federal income tax withheld from payments made to certain nonemployees. The backup withholding rate for 2024 is 24%. (Note that P.L. 115-97 lowered the backup withholding rate from 28% to 24% for tax years beginning after 2017 and before 2026. "P.L." stands for Public Law).
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 beginning the job. If the contractor refuses to provide you with a tax identification number, you are required to withhold backup withholding from such payment(s).
A tax identification number may be the independent contractor's Social Security number or Federal Employer Identification Number (EIN). If an independent contractor has employees, the contractor is required to have a federal employer tax identification number (EIN).
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.
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.
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.