The Tax Cuts and Jobs Act, public law 115-97 aka the new tax law, includes a reduction in the backup-withholding rate starting with tax year 2018.
Backup withholding is required when you do not have a valid taxpayer ID number for a payee on payments of rents, royalties or fees for service to independent contractors. The backup-withholding rate has been 28 percent for many years. However, the new tax bill reduces that percentage to 24 percent, effective as of January 2018.
So if your company is backup withholding on rents, royalties or service payments, you should now be withholding 24 percent instead of 28 percent.
When should you backup withhold? In these instances::
- Your reportable payee has not given you their taxpayer identification number.
- You received a B-notice from the IRS than the taxpayer ID number of the payee is incorrect.
Remit withholdings on IRS Form 945, as always.
Backup withholding answers why you need to gather W-9s from payees. You don’t need the extra administrative burden of having to backup withhold. Nor do you want to face penalties for paying an entity without having secured their tax ID or failing to backup withhold.
It’s a good reason to investigate implementing a supplier portal that allows for easy collection of forms W-9 and W-8 from suppliers. Collect the information electronically, get it verified and validated, and download it into your master file without rekeying.
Streamline your efforts to obtain tax IDs and validate those IDs, and avoid having to withhold even 24 percent!
To learn more about vendor verification and compliance click here to request more information or call (678) 335-5735.