Contract Labor
- Independent Contractor vs Employee
- Who Are Independent Contractors?
- Independent Contractors and Backup Withholding
- Form 1099-MISC
- Schedule C and Independent Contractors
- Independent Contractor Agreement
More Tax Topics
- Business Structures
- Start-up Costs
- Depreciation
- Car Expenses
- Home Office Deduction
- Travel Expenses
- Hiring Workers
- Meals and Entertainment
- Retirement
- Top Tax Myths
- Per Diem Rates - IRS Publication 1542 Oct 2011 for Travel Within the Continental U.S (for employers who pay a per diem allowance to employees)
Quick Links
Hot Topics
Need Some Deductions for 2011?
Don't overlook these!
Updated for 2011
Backup withholding and Independent Contractors
What is Backup Withholding?
Backup withholding is federal income tax withheld from payments made to nonemployees.
Unlike employees, where you must withhold taxes from their pay, there is no requirement to withhold taxes from payments made to independent contractor.
An independent contractor pays his/her own taxes.
However, backup withholding may sometimes be required for certain independent contractors who do not provide you with their tax identification number.
The tax identification number may be the independent contractor's:
- Social security number or,
- Federal employer identification number (EIN)
- If an independent contractor has employees, a federal employer identification number is required.
When Backup Withholding is Required for Independent Contractors
Backup withholding applies to fees of $600 or more (Form 1099-MISC) that you pay to any independent contractor who does not provide you with his/her tax identification number.
A tax identification number may be the person's Social Security number or Federal Employer Identification Number (EIN).
If an independent contractor has employees he/she is required to have a federal employer tax identification number (EIN).
Backup withholding rate:
The rate is 28% (2011).
Form W-9:
If an independent contractor has not provided you with his/her tax identification number, do the following:
- Have the person complete Form W-9.
What to do if backup withholding is required:
- Deduct 28% of the independent contractor's fee.
- Pay the tax to the United States Treasury.
- Report the amount of backup withholding on Form 1099-MISC.
- Issue Form 1099-MISC to the independent contractor no later than January 31, of the following tax year.
Copyright © 2008-2012 Larry Villano. All rights reserved.