Tax Tip 2018-168: Newly revised publication helps taxpayers understand changes to backup withholding

Internal Revenue Service (IRS) sent this bulletin at 10/30/2018 08:27 AM EDT

IRS Tax Tips

October 30, 2018

Issue Number: Tax Tip 2018-168

Newly revised publication helps taxpayers understand changes to backup withholding

The IRS urges taxpayers who make payments or receive payments to check out Publication 1281, Backup Withholding for Missing and Incorrect Name/TIN(s). The newly revised publication helps taxpayers understand how tax reform affects backup withholding. Backup withholding can apply to most kinds of payments reported on Form 1099.

Last year’s Tax Cuts and Jobs Act dropped the backup withholding tax rate from 28 percent to 24 percent.
This affects taxpayers who make and receive payments. Taxpayers who make payments are known as “payers,” while those who receive payments are known as “payees.”

Backup withholding can apply to payments such as:

Interest payments
Dividends
Patronage dividends, but only if at least half of the payment is in money
Rents, profits or other income
Commissions, fees or other payments for work performed as an independent contractor
Payments by brokers and barter exchange transactions
Certain portions of payments by fishing boat operators
Payment card and third-party network transactions
Royalty payments
Gambling winnings that aren't subject to regular gambling withholding
Taxable grants and agriculture payments

Here are some situations when a payee may be subject to backup withholding They:

Fail to give a taxpayer identification number to the payer
Give an incorrect TIN
Supply a TIN in an improper manner
Underreport interest or dividends on their income tax return
Fail to certify that they’re not subject to backup withholding for underreporting of interest and dividends

To stop backup withholding, the payee must correct any issues that caused it. They may need to give the correct TIN to the payer, resolve the underreported income and pay the amount owed, or file a missing return.

A TIN can be a:

Social Security number
Employer identification number
Individual taxpayer identification number
Adoption taxpayer identification number

The newly revised Publication 1281 is packed with useful information. It will help any payer who is required to impose backup withholding on any of their payees.

More information:

The Backup Withholding page
Publication 505, Tax Withholding and Estimated Tax
Publication 1335, Backup Withholding Questions and Answers
Form 945, Annual Return of Withheld Federal Income Tax
Publication 15, Employer’s Tax Guide

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Tax Tip 2018-168: Newly revised publication helps taxpayers understand changes to backup withholding

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Issue Number: Tax Tip 2018-168