TAX NEWS - DECEMber 2009

Backup Withholding Responsibilities for employers

Payers must remember that there may be backup withholding requirements if the payee fails to provide the payer with a Taxpayer Identification Number (TIN), or provides one that is obviously incorrect (e.g., wrong number of digits or includes an alpha character).

For example, in 2009 Macomb Corporation paid Wayne Coldwater $10,000 for lawn services. However, Macomb did not obtain a TIN from Mr. Coldwater. As the payer in this situation, Macomb Corporation could be liable for backup withhold-ing tax of $2800, as well as interest and penalties. Backup withholding is also required if the IRS notifies the payer that the TIN the payee pro-vided is incorrect.

Businesses can use IRS Form W-9, Request for Taxpayer Identification Number and Certification, to request that payees furnish a TIN and to certify that the number furnished is correct. Generally, the backup withholding rate is 28%, but that may change from one year to another, so payers should check Publication 15, (Circular E), Employer's Tax Guide, for the correct backup withholding rates for the current year.

Backup withholding amounts withheld from non-employee compensation are reported in Box4 of IRS Form 1099-MISC. Payers must send a copy ofthe Form 1099-MISC to the non-employee by January 31st, with a copy to IRS by February 28thof the year following the year of payment. If the payer files electronically, the due date for the 1099-MISC is March 31st.