Owners of small businesses should take note and review the updated Publication 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), recently released by the IRS. The updates on backup withholding were made to reflect a key change made by the Tax Cuts and Jobs Act.
The TCJA change was effective January 1, 2018, and resulted in the backup withholding tax rate dropping from 28% to 24%. Backup withholding applies when taxpayers fail to supply their correct taxpayer identification number to a payer. It also applies, following notification by the IRS, in other situations such as when taxpayers underreport interest or dividend income on federal tax returns.
"Publication 1281 is packed with useful information designed to help any payer required to impose backup withholding on any of their payees. Among other things, the publication features answers to 34 frequently asked questions (FAQs). One of them, Q/A 34, points out that a payer who mistakenly backup withheld at an incorrect rate (such as the old 28-percent tax rate, rather than the new 24-percent rate), need not refund the difference to the payee. However, a payer who chooses to refund the difference must do so before the end of the year and can then make appropriate adjustments to their federal tax deposits."
For full details, read IR-2018-205 on the IRS website.
LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.