August 27, 2020

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

If you are a taxpayer that’s receiving multiple forms of income, specifically receiving income payments, the IRS will require that the payments be reported as taxable income. Typically, if you are a 1099 earner, the person or business that is paying you generally won’t be withholding taxes on the payment they give to you.

Here is everything you need to know about a backup withholding (BWH).

  1. What is a backup withholding? Certain situations will require that a taxpayer withholds at the current rate of 24 percent. This percentage will be taken from any future payments and applied as taxes to ensure that a taxpayer does not owe at the end of the tax year.
  2. Payments you receive can be subject to backup withholding. BWH can be applied to most kinds of payments including:
  • Interest payments (Form 1099-INT) 
  • Dividends (Form 1099-DIV) 
  • Payment Card and Third Party Network Transactions (Form 1099-K) 
  • Patronage dividends, but only if at least half the payment is in money (Form 1099-PATR) 
  • Rents, profits, or other gains (Form 1099-MISC) 
  • Commissions, fees, or other payments for work you do as an independent contractor (Form 1099-MISC) 
  • Payments by brokers/barter exchanges (Form 1099-B) 
  • Payments by fishing boat operators, but only the part that is in money and that represents a share of the proceeds of the catch (Form 1099-MISC) 
  • Royalty payments (Form 1099-MISC) 
  • Gambling winnings (Form W-2G) may also be subject to backup withholding. 
  • Original issue discount reportable on (Form 1099-OID), Original Issue Discount, if the payment is in cash 
  • Certain Government Payments, Form 1099-G

3. How to prevent or stop a backup withholding. In order to stop a backup withholding, a taxpayer will need to correct the reason as to why they became subject to a backup withholding. This could include providing the correct tax identification number belonging to the payer, resolving any underreported income and paying off any balance that is owed, and filing any unfiled past tax years. 

If you need tax help, contact us for a free consultation.