Backup Withholding

Backup withholding is an amount withheld from owners for the IRS because they have not provided you with their tax Identification number TIN). If you have any owners that have not provided this to you, then you need to setup Backup Withholding for them.

A basic overview is that you need to withhold 28% of the net check sent to any owner that has not provided an accurate tax identification number to you. The amounts withheld will need to be submitted to the IRS and you will need to continually attempt to obtain this information from the owner.

Where Can I find More Information on it?
Instructions for withholding can be found on IRS Publication 1281 - www.irs.gov/pub/irs-pdf/p1281.pdf
Instructions for filing can be found on IRS Form 945 - www.irs.gov/pub/irs-pdf/i945.pdf

Publication 1281:
IRS Publication 1281 provides a lot of information that will be useful for you. The current Backup Withholding (BWH-B) rate is listed in the “Introduction” (Part 1). The contact information for “The Information Reporting Program Centralized Customer Service Center” is provided in Part 4. This is a call center for any questions that you have. Part 6 provides an easy to follow flow chart that you can use to help you determine what your next step is in various situations as well as the “B Notices” that should be sent out in your attempts to obtain the tax identification information from the owner. If you think that you may need to be withholding this, then it would be a great idea to review the whole publication so that you can see all of the rules, forms, and requirements that it provides.

Form 945:
If you have deducted Backup Withholding from anyone, then you can use Form 945 to report this to the IRS and Form 945-V to submit your payment. The instructions on this form provide you with all of the information in regards to submitting the payment to the IRS that was not already discussed on Publication 1281.

SherWare Setup:
If you need to deduct Backup Withholding from any of your owners, then you can do so by marking the “Subject to Backup Withholding” option located on the Options tab of the Owner Information window for each owner. You can then fill in the Backup W/H % field with 28% or whatever the current withholding rate is if it changes. The software will automatically calculate and deduct this from the owner’s check when a run is closed.

You will need to specify the account that will track this balance in the Posting Preferences as the “Backup Withholding Account”.

When it comes time to pay these amounts, you can refer to the balance of this account, or look at the Backup/Tax Withholding report to see what has been withheld.