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Am I Subject to Backup Withholding?

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Am I Subject to Backup Withholding?

Every year taxes seem to get more complicated. If you include the current tax code, past statutes and all the annotated caselaw, compiled into one document it is over 70,000 pages.  Even though the IRS spells things out in its tax regulations and gives us instructions, the forms are still extremely complicated.  It really easy to understand how your stress level can go up when you receive a backup withholding notice.

Every year, thousands of taxpayers across the country face tax issues. Whether it be a lien, a garnishment, a levy, or worse, many taxpayers like you suffer with tax problems. These tax problems can easily evaluate your blood pressure and affect your heath.  If you have tax problems or receive a mandatory backup withholding notice, we can help.

 

Who’s exempt from Backup Withholding Taxes?

A U.S. citizen or resident alien are exempt from backup withholding if their reported name and Social Security Number listed with the Social Security System matches what was filed with the IRS and you do not have a tax debt that has prompted mandatory backup withholding.

 

When is Backup Withholding Required?

The most common reason for backup withholding is due to a mistake by either the taxpayer on employer’s end. If you fail to provide your tax identification number (TIN) or SSN on Form W-9, backup withholding will start immediately.

If you have a debt with the IRS, they may notify you of backup withholdings through either Notice CP2100 (individuals) or CP2100A (Businesses).   Either Notice will inform you that you may be responsible for backup withholding. The notice will always contain a list of missing or incorrect information.

Want to know more about backup withholding?

We can answer any questions you have and help you determine what to do next.

CONTACT US TODAY

 

What Money is Subject to Backup Withholding?

Backup withholding can apply to almost any payment that is reported on Form 1099. It is taxed at a flat rate of 28% on following payment types:

  • Commissions, fees, and other payments for work you perform as an independent contractor.
  • Dividends
  • Form 1099-G payments under IRC 6041 and 3406(b)(3)(A) which include taxable grants and agricultural payments (1099-G Box 6 or 7).
  • Gambling winnings
  • Interest payments
  • Original Issue Discount, if the payment is in cash
  • Patronage dividends
  • Payments by brokers/barter exchanges
  • Payment card and third-party network transactions
  • Payment dividends (only if half the payment is in money)
  • Payments by fishing boat operators, but only the portion in money that represents a share of the proceeds
  • Royalty payments

 

Not all payments on a 1099 are included in backup withholding. Examples include;

  • Abandonments.
  • Cancelled debts.
  • Distributions from Archer MSAs.
  • Distributions from retirement accounts.
  • Distributions from ESOP.
  • Foreclosures.
  • Fish purchases for cash.
  • Qualified tuition program earnings.
  • State or local tax refunds.
  • Unemployment compensation.

 

If you receive a notice of backup withholding, let the team at Legacy Tax & Resolution help  and decipher whether the IRS is taxing you correctly.

 

How to Prevent Backup Withholding

The best way to prevent backup withholding is to insure that the Form W-9 has been prepared and submitted correctly.

 

Why Legacy Tax & Resolution Services is Your Source for Tax Discrepancies

When you receive a notice from the IRS, the envelope alone can be heart-stopping. Just seeing the title “IRS” emblazoned on the envelope can make you feel like the worst is about to happen! That does not have to be the case. No matter what your tax status or financial circumstance, we at Legacy Tax & Resolution Services can help you navigate your way to financial freedom. If you ever have questions regarding backup withholding taxes or any other tax-related issues, you can always contact the IRS via telephone or on the internet at www.irs.gov. If you’re still stumped for answers or need more help, our team of tax and legal professionals at Legacy Tax & Resolution Services will be here to help you. There’s no need to have feelings of doom and gloom when you receive a notice from the IRS in the mail. If you feel like you’re in over your head or you just need some professional advice, our professionals at Legacy Tax are here and ready to help solve your tax problems.

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