New Tax Law Sneaks in Change in Backup Withholding Rate


The newly implemented Tax Cuts and Jobs Act, better known as the new tax law, dropped the backup withholding rate for payments reported on form 1099 from 28 percent to 24 percent effective Jan. 1, although many organizations might not have noticed.


The IRS announced the withholding adjustment in Notice 1036 in early January. The change, however, was not obvious. The IRS itself still listed the 28 percent figure in its guidance about backup withholding until late January. 


But the amount of backup withholding is indexed to tax rates, specifically the fourth-lowest tax rate for single individuals. That used to be 28 percent, but under the new law, it’s 24. Therefore, the new withholding rate is also 24 percent.


Shift in Withholding Amount

The somewhat hidden change means that 1099 filers will need to adjust backup withholding percentages in the systems they use to manage tax information. The IRS says employers should start using the new withholding rate as soon as possible and no later than Feb. 15.


As a reminder, backup withholding kicks in under several scenarios involving 1099s, generally when there is a name-TIN mismatch in a file. The IRS website specifically says:


You may be subject to backup withholding and the payer must withhold when:

  • You don’t give the payer your TIN in the required manner.
  • The IRS notifies the payer that the TIN you gave is incorrect.
  • The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. The IRS will do this only after it has mailed you four notices over at least a 120-day period.
  • You fail to certify that you’re not subject to backup withholding for underreporting of interest and dividends.

Take Action

Sovos delivers value by keeping organizations up to date on the latest changes in 1099 regulations. Find out more.


About the Author

Gerry  Nelligan

More Content by Gerry Nelligan
Previous Article
How Does a Government Shutdown Affect Reporting Season?
How Does a Government Shutdown Affect Reporting Season?

The latest government shutdown provided some hints as to how the IRS manages a loss of funding during repor...

Next Flipbook
Success Story: Medical-Device Manufacturer
Success Story: Medical-Device Manufacturer

Discover how a major maker of medical devices cut the time it took to deal with 1099 forms from a week to l...

Let's Connect!

Contact Us