This is Jean Wetzler.
I'm talking with John Imhoff about backup withholding for Form 1099 Miscellaneous.
John, when a business pays a "non-employee," such as an independent contractor, what are the business's tax-reporting requirements at the end of the year?
Businesses that pay independent contractors $600 or more for services are required by law to report the total amount paid on Form 1099-MISC.
The total for the calendar year goes in Box 7.
The payer must provide the 1099 to both the independent contractor and the IRS.
The 1099-MISC must be provided to the independent contractor by January 31.
If it's filed on paper, it's due to the IRS by February 28.
If it's filed electronically, it's due later - on March 31.
Are there any withholding requirements for these reportable payments?
However, there are two conditions where withholding applies:
First, if the independent contractor fails to provide their TIN - Taxpayer Identification Number - or provides one that is obviously incorrect - for example, it has the wrong number of digits or includes an alpha character - the business should withhold tax.
The second condition involves the IRS notifying the business that the TIN the independent contractor provided is incorrect.
Here too, withholding applies.
The payer reports any withholding on the 1099-MISC Form in Box 4.
This is called backup withholding.
What can happen if a business does not backup withhold when required?
Generally, the payer may be liable for the tax he was required to withhold from the payee, whether or not he actually withheld it.
Businesses that file information returns with the IRS after the due date, or with incorrect or incomplete information,
may be subject to a penalty of $50 per incorrect or incomplete 1099-MISC, up to a maximum of $250,000.
Where can businesses find more information on the topic?
Details are in the instructions for Form 1099 and Form W-9, Request for Taxpayer Identification Number and Certification.
These forms and more, are on our Web site, IRS.gov.
Thank you, John.
I've been talking with John Imhoff of the IRS.
This is Jean Wetzler.
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