24 September 2009
The IRS requires payers under certain circumstances to withhold 28% for vendor payments as backup withholding taxes on payments of interest, rents, royalties, commissions, non-employee compensation, and certain other payments.

Backup Withholding is required under three circumstances:
  1. Backup withholding is required when the agency requests a Taxpayer Identification Number (TIN) from a vendor and one is not provided. The agency must backup withhold on any payments made to this vendor. Once backup withholding begins, the agency must continue to withhold until the vendor provides his/her TIN.
  2. The IRS sends the agency a first B Notice (CP2100) and the vendor does not respond within 30 days to the agencies request for certification of the TIN. The agency must begin to backup withhold on any payment made to this vendor. Backup withholding continues until the vendor provides a TIN certified on IRS Form W-9.
  3. The IRS sends the agency a second B Notice within a three-year period. The agency must begin backup withholding immediately. Backup withholding continues until the IRS notifies the agency to stop withholding. This notification may be an IRS Letter 147C or SSA Form 7028.
To withhold you need to set up an account with Electronic Federal Tax Payment System (EFTPS) www.eftps.com. You will also need to determine your deposit schedule.

Determining your deposit schedule

There are two deposit schedules, monthly or semiweekly. These schedules tell you when a deposit is due after a tax liability arises. Before the beginning of each calendar year, you must determine which of the two deposit schedules you must use.

For 2009, you are a monthly scheduled depositor for Form 945 if the total tax reported on your 2007 Form was $50,000 or less. If the total tax reported for 2007 exceeded $50,000, you are a semiweekly schedule depositor.

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Topic: Advice