What is IRS backup withholding tax for contractors
When you have contractors that worked for your business, you need to issue a 1099 when paying them more than $600 dollars. However, you as the business owner can be liable for their tax.
When the contractors do not have a taxpayer id number such as a Social Security number or ITIN, they are subject to backup withholding. The current backup withholding tax rate is 24%. You shall withhold and remit the percentage for these taxpayers to the IRS by filing Form 945. This is the way the IRS make sure the contractors pay their taxes. And when they do file their returns, they will get a refund of the excess tax you withhold from the IRS.
When you do not have the 24% withheld for your contractors, you will be liable for the amount. This will be on your business account as a trust fund recovery penalty. So the regular penalty abatement form 843 will probably not work. The only way to reduce this amount is by filing a 945-X form, 4669 Form and 4670 Form. On these forms, you will show that some of your contractors actually filed their schedules C returns and pay their tax. Therefore, you will be no longer liable for the 24% withholding for these contractors and your penalty decreases.
What is IRS backup withholding tax for contractors