Publication 505 - Tax Withholding And Estimated Tax Page 16
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49can choose to have 7%, 10%, 15%, or 27% of
payments reported on Form 1099 – MISC (other
For more information on ITINs, get Publication
each payment withheld.
than payments by fishing boat operators and
1915, Understanding Your IRS Individual Tax-
If you do not choose to have income tax
payer Identification Number.
royalty payments) unless at least one of the
withheld, you may have to make estimated tax
following three situations applies.
payments. See chapter 2.
How to prevent or stop backup withholding.
If you do not pay enough tax either through
1) The amount you receive from any one
If you have been notified by a payer that the TIN
withholding or estimated tax, you may have to
payer is $600 or more.
you gave is incorrect, you can usually prevent
pay a penalty. See chapter 4.
backup withholding from starting or stop backup
2) The payer had to give you a Form 1099
More information. For more information
withholding once it has begun by giving the
last year.
about the tax treatment of social security and
payer your correct name and TIN. You must
3) The payer made payments to you last year
railroad retirement benefits, get Publication 915,
certify that the TIN you give is correct.
that were subject to backup withholding.
Social Security and Equivalent Railroad Retire-
However, the payer will provide additional
ment Benefits. Get Publication 225, Farmer’s
Form 1099 and backup withholding are gen-
instructions if the TIN you gave needs to be
Tax Guide, for information about the tax treat-
erally not required for a payment of less than
validated by the Social Security Administration
ment of commodity credit loans or crop disaster
$10.
or by the IRS. This may happen if both the
payments.
following conditions exist.
Withholding rules. When you open a new
1) The IRS notifies the payer twice within 3
account, make an investment, or begin to re-
Backup Withholding
calendar years that a TIN you gave for the
ceive payments reported on Form 1099, the
same account is incorrect.
bank or other business will give you Form W – 9,
Request for Taxpayer Identification Number and
Banks or other businesses that pay you certain
2) The incorrect TIN is still being used on the
Certification, or a similar form. You must show
kinds of income must file an information return
account when the payer receives the sec-
your TIN on the form and, if your account or
(Form 1099) with the IRS. The information re-
ond notice.
turn shows how much you were paid during the
investment will earn interest or dividends, you
year. It also includes your name and taxpayer
also must certify (under penalties of perjury) that
Underreported interest or dividends. If
identification number (TIN). TINs are explained
your TIN is correct and that you are not subject
you have been notified that you underreported
later in this discussion.
to backup withholding.
interest or dividends, you must request a deter-
These payments generally are not subject to
mination from the IRS to prevent backup with-
For 2002, the payer must withhold at a flat
withholding. However, “backup” withholding is
holding from starting or to stop backup
30% rate in the following situations.
required in certain situations.
withholding once it has begun. You must show
•
You do not give the payer your TIN in the
Payments subject to backup withholding.
that at least one of the following situations ap-
required manner.
Backup withholding can apply to most kinds of
plies.
•
payments that are reported on Form 1099.
The IRS notifies the payer that the TIN
•
No underreporting occurred.
These include:
you gave is incorrect.
•
•
You have a bona fide dispute with the IRS
Interest payments (Form 1099 – INT),
•
You are required, but fail, to certify that
about whether an underreporting oc-
•
you are not subject to backup withholding.
Dividends (Form 1099 – DIV),
curred.
•
•
The IRS notifies the payer to start with-
•
Patronage dividends, but only if at least
Backup withholding will cause or is caus-
holding on interest or dividends because
half the payment is in money (Form
ing an undue hardship and it is unlikely
1099 – PATR),
you have underreported interest or divi-
that you will underreport interest and divi-
dends on your income tax return. The IRS
•
Rents, profits, or other gains (Form
dends in the future.
will do this only after it has mailed you four
1099 – MISC),
•
You have corrected the underreporting by
notices over at least a 120-day period.
•
Commissions, fees, or other payments
filing a return if you did not previously file
for work you do as an independent con-
Taxpayer identification number (TIN).
one and by paying all taxes, penalties, and
tractor (Form 1099 – MISC),
Your TIN is one of the following three numbers.
interest due for any underreported interest
•
or dividend payments.
Payments by brokers (Form 1099 – B),
1) Your social security number (SSN).
•
Payments by fishing boat operators,
If the IRS determines that backup withholding
2) Your employer identification number.
but only the part that is in money and that
should stop, it will provide you with certification
represents a share of the proceeds of the
3) An IRS individual taxpayer identification
and will notify the payers who were sent notices
catch (Form 1099 – MISC), and
number (ITIN). Aliens who do not have an
earlier.
•
SSN and are not eligible to get one should
Royalty payments (Form 1099 – MISC).
get an ITIN. Form W – 7, Application for
Penalties. There are civil and criminal penal-
Backup withholding may also apply to gambling
IRS Individual Taxpayer Identification
ties for giving false information to avoid backup
winnings. See Backup withholding on gambling
Number, is used to apply for an ITIN.
withholding. The civil penalty is $500. The crimi-
winnings under Gambling Winnings, earlier.
nal penalty, upon conviction, is a fine of up to
An ITIN is for tax use only. It does not entitle you
to social security benefits or change your em-
$1,000 or imprisonment of up to one year, or
Payments not subject to backup withhold-
both.
ing. Backup withholding does not apply to
ployment or immigration status under U.S. law.
Page 16
Chapter 1 Tax Withholding for 2002
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