1099 witholding

"Grip" wrote

Yes you can. Most commonly it's done because the IRS instructs you to - called backup withholding.

Pay the taxes as you would your employees payroll withholding, but the tax type is 945 instead of 941, so the tax deposit is made separate from your employee payroll tax. The annual report to file to reconcile the tax withheld and paid with the 1099 is Form 945 - here:

It is possible.

In the paraphrased words of Elmer Fudd - BE VEWY, VEWY CAREFUL HERE!

Contractors and employee's get separate tax treatment. Blurring that line could come back to bite you in a way that you are not prepared to deal with. If you start treating this IC as an employee, by withholding and remitting tax for them, do NOT be surprised when the authorities step in and reclassify the IC as an employee. That would put you on the hook on for HALF of the FICA taxes PLUS Federal and State unemployment, worker's comp coverage and any fringe benefits you pay to other employees (like yourself) for things like health insurance, retirement plans, vacation and sick leave, etc.

If your IC is having trouble making quarterly payments - likely because they spend the money and have none left - the better solution is for them to remit the taxes more often than quarterly.

We have a few IC clients who have trouble saving enough to mail in quarterly payments. So we print twelve (12) estimated tax payment coupons for most of them - for one of them we actually print 52 quarterly payment coupons. This way they can mail in the money every month, or week. Now they don't have to save up the money, they send it in as soon as they get their checks.

Were you my client I would tell you ABSOLUTELY NO, you cannot withhold and remit taxes for them UNLESS you are ready to make them an employee.

Be careful, Gene E. Utterback, EA, RFC, ABA

Gene has just said it all and very correctly and very eloquently I think.

I recommend also that any payer not be tempted to accommodate a sub contractor for fear of being re classified by IRS with dire consequences.

IOW, don't bait the bear.

ChEAr$, Harlan Lunsford, EA n LA

If a subcontractor failed to give you a tax ID number, wouldn't you be required to withhold?

NOPE!

Payments made to most corporations are exempt from withholding and the issuance of a 1099.

And YOU do not get to decide when to start backup withholding, you have to wait for the IRS to tell you to do so.

Form W-9 as part of all contract negotiations with all subcontractors BEFORE a check as to be issued. This way you have all the information you need so you'll know how to proceed when the time comes. If you have the name, address and ID number of the recipient then you are good to go.

BUT if you let a subcontractor work for you and he refuses to give you his ID information that refusal is insufficient to justify not paying him. AND since you have NOT been instructed by the IRS to start backup withholding, you can't hold back any of his money either. Hence, you have no choice but to issue the check.

This leaves you in the unfavorable position of trying to figure out whether you should issue a 1099 or not and if so what do you put on it. Remember, if you should issue one and don't your only success is to have inappropriately circumvented the safe harbor allowance for reporting.

This is just one example of why a decent tax pro is worth what he charges, and top shelf guys )like me, Harlan, Dick, Paul, Phil and several others) are worth even more.

It is also why NO ONE should attempt to do their own business return, at least not the first one anyway, without first seeking the advice of a competent tax pro. There are so many things that nonprofessionals miss, mostly because they don't know about them, that could be costing them big money. And even if they've done everything right, what have they lost in opportunity because they had to learn the tax aspects of their business, or how much sleep have they lost wondering if they missed something.

I am all for people keeping their costs down, but don't be penny wise and pound foolish!

Gene E. Utterback, EA, RFC, ABA

Hmmm.. uh... That's not what I thought, Gene. (and I thank you for your kind words in your reply).

But I must take issue with your statement above. If a payor does not have a TIN on file he must immediately start backup withholding. You may have noticed that many financial institutions backup withhold for customers when they do not have the SSN on file in the proper format or on the proper form even though they might have the SSN in file elsewhere.

ChEAr$, Harlan

Harlan,

It seems I incorrectly stated that you have to wait to be told to backup withhold. IRS page

What should I do if a payee refuses or neglects to provide a TIN?

Begin backup withholding immediately on any reportable payments. Do the required annual solicitation (request) for the TIN. Backup Withhold until you receive a TIN.

And their page at

See Backup Withholding in chapter 1 of Publication 505 for more information.

So, it seems that my statement that we have to wait to be told to backup withhold was incorrect.

Backup withholding seems to be REQUIRED for all payments where the recipient does not furnish a TIN.

Sorry for the mistake, Gene E. Utterback, EA, RFC, ABA