What businesses need to know about reporting nonemployee compensation and backup withholding to the IRS

 

When a business hires an independent contractor, the employer is generally not responsible for withholding income taxes, Social Security, or Medicare taxes from their compensation. However, by law, business taxpayers who pay nonemployee compensation of $600 or more must report these payments to the IRS. They do this using Form 1099-NEC, Nonemployee Compensation.

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

Nonemployee compensation reportable on Form 1099-NEC is subject to backup withholding if a payee has not provided a Taxpayer Identification Number to the payer or the IRS notifies the payer that the payee provided a TIN that does not match their name in IRS records.

A TIN can be one of the following numbers:

  • Social Security
  • Employer identification
  • Individual taxpayer identification
  • Adoption taxpayer identification

What is backup withholding?

Backup withholding can apply to most kinds of payments reported on Forms 1099 and W-2G. The person or business paying the taxpayer doesn't generally withhold taxes from certain payments; however, there are situations when required the payer is to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income. The payer's requirement to withhold taxes from payments not otherwise subject to withholding is known as backup withholding. The current backup withholding tax rate is 24%.

More information:


Interested in participating in a voluntary tip agreement with the IRS?

You are invited to join us for a free one-hour Microsoft Teams event on the Gaming Industry Tip Compliance Agreement (GITCA) Program hosted by the IRS office of Indian Tribal Governments (ITG). 

This event will discuss:

  • How the GITCA Program works
  • The benefits of entering into a tip agreement for tribal entities and their employees.

Click on the meeting link below when it’s time to join.

Microsoft Teams Event on Tuesday, August 16, 2022, at 12:00 pm ET:

Join on your computer or mobile app Click here to join the meeting

Or call in (audio only) 737-253-8186 Conference ID: 241 831 295#

Questions emailed to TEGE.outreach@IRS.gov with the subject line “Pre-submitted questions for GITCA Program” will be answered as time permits.

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