Backup Withholding Rate Dropped to 24 Percent

| 10/25/2018
As a result of tax rate changes enacted in the Tax Cuts and Jobs Act of 2017, the backup withholding rate was reduced from 28 percent to 24 percent. This rate is effective for payments that are subject to backup withholding and that are made on or after Jan. 1, 2018.

Backup withholding is required by payers who make certain payments to nonexempt payees when the IRS notifies the payer that backup withholding is required, if the payee provides an incorrect taxpayer identification number (TIN), or if the payee does not provide the payer a TIN. Payments subject to backup withholding include:
  • Rents and commissions, nonemployee compensation for services, royalties, reportable gross proceeds paid to attorneys, and other fixed or determinable income reportable on Form 1099-MISC
  • Interest reportable on Form 1099-INT
  • Dividends reportable on Form 1099-DIV
  • Patronage dividends paid in money or qualified check reportable on Form 1099-PATR
  • Original issue discount paid in cash reportable on Form 1099-OID
  • Gambling winnings reportable on Form W-2G, “Certain Gambling Winnings”
  • Gross payments reportable on Form 1099-K for payment card transactions
  • Certain Form 1099-G payments, including taxable grants and agricultural payments
Payees use Form W-9, “Request for Taxpayer Identification Number and Certification,” to provide TIN information to a payer. Payers should immediately begin backup withholding on reportable payments made to nonexempt payees who fail to provide a TIN. Payers should follow the instructions on any notices they receive regarding beginning backup withholding and providing notice to payees. Payers also can reduce or eliminate the number of notices they receive by registering for an IRS e-Services account and using their TIN matching service.

Additional information on backup withholding is available in IRS Publication 1281.

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Rochelle Hodes
Rochelle Hodes
Principal, Washington National Tax