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The IRS recently released a reminder that the TCJA reduced the backup withholding tax rates from 28% to 24%, while bonuses and other supplemental income backup withholding tax rates were lowered to 22%. Any payments exceeding $1 million, subject to the backup withholding, require withholding at a rate of 37%.
When Backup withholding is required, it is required of the payer of any money that would not otherwise be subject to withholding, such as income reported to a payee on a form 1099.
If you are a payer responsible for backup withholding, you will be notified by the IRS of your responsibility to withhold.
In the event backup withholding is required, the payer must begin withholding at the rates mentioned above from the time the notice is issued.
There will not be a requirement to withhold retroactively for any payee. To remove the requirement for backup withholding, the payee must correct the issue that originally created the requirement.
This could mean providing the correct TIN, reporting unreported income and paying the taxes owed, or filing a missing return. You are required to withhold until the IRS issues a notification that it is no longer required.
If you have any questions regarding backup withholding requirements, please contact your Delap advisor and ask any questions you may have.