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Questions and Answers About Backup Withholding

Making Sure You Follow the IRS Backup Withholding Regulations


Backup withholding is income tax withholding taken from the compensation of non-employees and from other payments.  In most cases, you don't need to withhold income taxes from non-employees, unless they don't qualify for a backup withholding exemption.  If you think it's confusing, it is (it's the IRS, after all).  In this article you will learn what backup withholding is, how to verify taxpayer ID numbers for non-employees, what to do when you receive an IRS notice, and how to report backup withholding to the IRS. 

1. What is Backup Withholding?

The IRS wants to make sure that taxpayers properly make income tax payments, so it requires that you withhold income taxes from non-employees if they do not provide you with a Taxpayer ID number or if the taxpayer ID number is incorrect.

2. What is Acceptable as a Taxpayer ID Number?

For purposes of verifying a taxpayer ID, you can use any one of these three forms of identification:

1. A Social Security number

2. An employer ID number

3. An individual taxpayer ID number (ITIN). This form of identification is provided to those who do not have a social security number or other tax identifier.

3. How Do I Report a Non-Employee's Taxpayer ID to the IRS?

Use Form W-9 to report information on a non-employee, either when you first start paying that individual or when you have paid at least $600 in a year. 

4. What Are These IRS Notices About Backup Withholding?

What do you do when you receive a notice from the IRS of a missing/inaccurate taxpayer ID number?  What if you receive a second notice?  Answers to questions about IRS notices and backup withholding are here.

5. How Do I Report Backup Withholding Payments to the IRS Each Year?

Use Form 945 to report backup withholding for all non-employees and other transactions to the IRS each year.

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