IRS announces new online tool to help U.S. withholding agents validate their 1042-S data prior to filing; Businesses and government entities must report nonemployee compensation; Backup withholding

 

The Internal Revenue Service launched a new online tool designed to help U.S. withholding agents comply with their reporting and withholding responsibilities with respect to IRS Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding.

 

The tool performs a quality review of data before submission to the IRS. Use of the tool does not change a withholding agent's obligations to file Forms 1042-S with the IRS and furnish a copy of the Form 1042-S to the payee.

 

The tool is designed to accept Form 1042-S data in common file formats that can be generated by most withholding agents' back office systems. After uploading the data, the user will receive a report indicating errors and potential errors. A tutorial on how to use the tool can be viewed online or downloaded.

 

Businesses and government entities must report nonemployee compensation

Businesses, including government entities and charities, which pay nonemployee compensation of $600 or more must use Form 1099-NEC, Nonemployee Compensation to report these payments to the IRS.

Generally, payers must file Form 1099-NEC by January 31. For 2021 tax returns, there is no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.

Backup withholding

Backup withholding is the payer's requirement to withhold taxes from payments not otherwise subject to withholding. Nonemployee compensation may be subject to backup withholding if a payee has not provided a Taxpayer Identification Number (TIN) to the payer, or the IRS notifies the payer the TIN provided doesn’t match IRS records. The current backup withholding tax rate is 24%.

A TIN can be one of the following numbers:

• Social Security Number
• Employer identification
• Individual taxpayer identification
• Adoption taxpayer identification 
• For more information, watch Backup Withholding on IRSvideos.gov.