Are you up to date on your IRS Withholding? Most taxpayers understand that there is IRS tax withholding from employers for your paycheck. Employers will withhold part of your paycheck each pay period so that you can cover your anticipated tax bill.
But many taxpayers may not understand that there can be withholding on other types of income including interest and dividends and even on casino jackpots. This tax withholding is known as backup withholding. There are many types of income that you may need backup withholding for.
REASONS FOR BACKUP WITHHOLDING
The most common reason for backup withholding is that the payer of the interest or dividends or other income payment doesn’t have your Social Security number or your tax identification number. If they don’t have a tax I.D. number, they have to withhold some of the payment to cover your possible taxes.
Another reason for this backup withholding is that the IRS requires it because you have a tax debt.
In some cases you might request backup withholding because you received a big payment or casino jackpot and you want your taxes on that payment or jackpot handled right away rather than when you file your tax return or make quarterly tax payments. Remember, that certain people who have independent income such as interest, dividends, or stock market trading income may have to file and pay quarterly tax payments.
THE BACKUP WITHHOLDING RATE
The law requires companies to take 24% of payments made to you for backup withholding. But you can request that more money is withheld. Winners of casino jackpots, for example, might request larger backup withholding percentages to cover other tax liabilities.
EXAMPLES OF INCOME THAT MAY HAVE BACKUP WITHHOLDING
Here is a list of different types of income that may need backup withholding to cover your tax liabilities. These are the same types of income that might require you to make quarterly tax payments to the IRS.
- Interest payments
- Payment card and third-party network transactions
- Rents, profits, or other gains
- Commissions, fees, or other payments for work done as an independent contractor
- Payments by brokers
- Barter exchanges
- Payments by fishing boat operators, but only the part that is paid in actual money and that represents a share of the proceeds of the catch
- Royalty payments
- Gambling winnings, if not subject to gambling withholding
- Taxable grants
- Agriculture payments
Talk to your tax professional about backup withholding issues, and whether you should have more than 24% withheld. There is also the possibility that you have too much withholding from your employer for your regular paycheck and if that’s the case, your backup withholding could be more than is necessary to meet your tax obligations.
And if you are facing budget problems a tax professional might advise you to file your taxpayer identification number with the payer so there is no withholding and your cash flow improves.
IF YOU CAN’T FILE YOUR TAX DEBT TALK TO A PROFESSIONAL
If you have not had sufficient taxes withheld from these varioius forms of income and you have tax debt now or anticipate having significant tax debt, you should talk to a tax professional about the options available to you to clear up these debts. You might be eligible for the IRS Fresh Start Program or the IRS Offer In Compromise Program.
We offer a free consultation about the IRS Fresh Start Program and the IRS Offer In Compromise Program, and usually in 15 minutes or less our tax solution consultants can tell you if you will qualify for an IRS Fresh Start or Offer In Compromise. And if you don’t qualify for an IRS Fresh Start or Offer In Compromise there may be another option to resolve your tax debt including payment plans.
Getting an IRS Fresh Start Program or Offer In Compromise starts with a free telephone call and in the video below you’ll hear what goes on during this free consultation and how simple this can be.
Here again is the direct phone number to call Tom at our office: 949-359-0810
Or, you can call our general number on this page to reach any of our tax resolution experts about the IRS Fresh Start Initiative or the IRS Offer In Compromise.