Backup Withholding Rate Now 24%

 

The Internal Revenue Service is reminding small businesses that recent tax reform legislation lowered the backup withholding tax rate to 24 percent and the withholding rate that usually applies to bonuses and other supplemental wages to 22 percent. The agency is also recommending that employers encourage their employees to check their withholding using the IRS Withholding Calculator.

 

Under a key change made by the Tax Cuts and Jobs Act (TCJA) enacted in December 2017, the backup withholding tax rate dropped from 28 percent to 24 percent, effective January 1, 2018. Backup withholding applies in various situations, including when a taxpayer fails to supply their correct taxpayer identification number (TIN) to a payer. Usually, a TIN is a Social Security number (SSN), but in some instances, it can be an employer identification number (EIN), individual taxpayer identification number (ITIN) or adoption taxpayer identification number (ATIN). Backup withholding also applies, following notification by the IRS, where a taxpayer under-reported interest or dividend income on their federal income tax return.