Backup Withholding
Do you have passive income like stock or rental income? Improperly providing information to payers, such as banks, can cause a backup withholding on your passive income. Certain types of income on your Form 1099 may be subject to the backup withholding. Currently, the rate is set at 28% for certain income payments made. However, you can avoid this withholding by providing correct and accurate information.
Income subject to Backup Withholding
- Interest income
- Dividends
- Patronage Dividends
- Rents, Profits, and Other income (as in the “other income” line noted on a person’s Form 1040)
- Independent contractor commissions, fees, and related income
- Brokers and barter transactions
- Fishing boat operators payments
- Payment card and third party network transactions
- Royalty payments
Prevent Backup Withholding
- Provide correct tax identification (TIN) numbers such as your Social Security Number or Employer Identification Number (EIN). Incomplete or incorrect numbers will trigger a backup withholding.
- Do not under-report interests or dividend income on your tax return. After a 120-day period and notifying you of the under-reporting by mail, the IRS informs your payer that you have been under-reporting dividend or interest income. The payer will then start the backup withholding.
Backup withholding is an not widely known issue that can take away what you earn from investment or other types of passive income. To prevent such penalties from the IRS requires a knowledgeable source of advising. MiklosCPA can certainly assist you with that and other accounting needs. MiklosCPA is a tax advisory and accounting firm that utilizes its experience and knowledge of tax to help businesses take care of their taxation and accounting needs. Businesses can then focus on what needs to be done, which is to succeed and grow. If you are interested in learning more about our services, feel free to contact us.