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Backup Withholding Deadlines That Entrepreneurs Should Take Note Of

Backup Withholding Deadlines That Entrepreneurs Should Take Note Of

Some companies and other payers deduct backup withholding from payments paid to specific individuals. These organizations, though, must keep in mind the imminent filing deadlines. But first, let's discuss what exactly backup withholding is.

What is Backup Withholding?

The person or entity paying the taxpayer does not deduct taxes from specific payments in most cases. They don't do this since the taxpayer is expected to record and pay taxes on this income when filing their federal tax return. However, there are times when the payer must withhold a particular proportion of taxation to ensure that the IRS obtains the tax due on this income. This is what is referred to as backup withholding. If a payer uses backup withholding, they must deposit that withholding with the IRS on those payments.

Backup withholding mandates a payer to withhold tax from payments not otherwise subject to withholding when it applies. If you fail to give an accurate taxpayer identification number (TIN) or if you fail to record interest, dividend, or patronage dividend income, you may be liable to backup withholding.

Banks and other businesses that make specific types of payments to you are required to file a Form 1099 with the IRS, detailing the payments you received throughout the year. Your name and TIN, such as a social security number (SSN), employer identification number (EIN), or individual taxpayer identification number (ITIN), appear on a Form 1099. (ITIN). Any amounts withheld under the backup withholding regulations will also be reported on Form 1099.

Payments subject to backup withholding: Backup withholding can apply to most kinds of payments reported on Form 1099, including:

  • Interest payments (Form 1099-INT)
  • Certain government payments (Form 1099-G)
  • Dividends (Form 1099-DIV)
  • Patronage dividends, but only if at least half of the payment is in money (Form 1099-PATR)
  • Rents, profits, or other income (Form 1099-MISC)
  • Commissions, fees, or other payments for work performed as an independent contractor (Form 1099-NEC)
  • Payments by brokers and barter exchange transactions (Form 1099-B)
  • Payments by fishing boat operators, but only the part that's in money and that represents a share of the proceeds of the catch (Form 1099-MISC)
  • Payment Card and Third-Party Network Transactions (Form 1099-K)
  • Royalty payments (Form 1099-MISC)
  • Original issue discount, but limited to the amount of cash paid (Form 1099-OID)

Backup withholding also may apply to gambling winnings (Form W-2G) that aren't subject to regular gambling withholding.

Form 945, Annual Return of Withheld Federal Income Tax

Businesses must report backup withholding, and any other federal income tax withheld from nonpayroll payments must be reported on Form 945 by companies. For the tax year 2021, the deadline to file Form 945 is January 31, 2022. However, if the payer made deposits on time and in full, the deadline is Thursday, February 10, 2022.

Information Returns

For the tax year 2021, the information returns described below are used to submit backup withholding. The deadline for paper filers is Monday, February 28, 2022, while electronic filers are Thursday, March 31, 2022. These information returns are:

  • Form 1099-B, Proceeds from Broker and Barter Exchange Transactions
  • Form 1099-DIV, Dividends and Distributions
  • Form 1099-G, Certain Government Payment
  • Form 1099-INT, Interest Income
  • Form 1099-K, Payment Card and Third-Party Network Transactions
  • Form 1099-MISC, Miscellaneous Income
  • Form 1099-NEC, Nonemployee Compensation
  • Form 1099-OID, Original Issue Discount
  • Form 1099-PATR, Taxable Distributions Received from Cooperatives
  • Form W-2G, Certain Gambling Winnings

Except for Form 1099-NEC, information returns must be filed with the IRS by Monday, February 28, 2022, for paper filers and Thursday, March 31, 2022, for electronic filers. For assistance with electronically filing information returns, taxpayers should see Publication 1220.

1099-MISC and Nonemployee Compensation

When reporting nonemployee compensation, Form 1099-MISC has a particular due date. This form must be submitted to the IRS by January 31 if it is used to report this in box 7 of the 1099-MISC. This deadline applies whether the payer submits the paperwork on paper or online. 

A Form 1099-MISC has two possible due dates when filed electronically:

  • Friday, January 31 to report nonemployee compensation payments
  • Thursday, March 31 to report all other payments

The payer should separate the transmission of nonemployee compensation from other payments.

Information Return Filing Extensions

By filing Form 8809, Application for Extension of Time to File Information Returns, a payer can request a 30-day extension to file any of the information returns specified above. In the majority of cases, an extension is formally accepted. For those filing Form 1099-MISC to disclose nonemployee compensation payments, however, the IRS does not necessarily give an extension. Payers who require a 30-day extension must meet one of the conditions specified on line 7 of Form 8809.

Ines Zemelman, EA
Founder of TFX