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How Back-Up Withholding May Impact You

IRS Pub. 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), is now available on It has been updated to reflect a key change made by the Tax Cuts and Jobs Act. As a result of this change, effective January 1, 2018, the backup withholding tax rate dropped from 28% to 24%. In general, backup withholding applies in various situations including, but not limited to, when a taxpayer fails to supply their correct Taxpayer Identification Number (TIN) to a payer. Usually, a TIN is a Social Security Number, but in some instances, it can be an Employer Identification Number. Backup withholding also applies, following notification by the IRS, where a taxpayer underreported interest or dividend income on their federal income tax return.
IRS Pub. 1281 contains 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, FAQ 34, points out that a payer who mistakenly backup withheld at an incorrect rate (such as the old 28% tax rate, rather than the new 24% 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.
When backup withholding applies, payers must backup withhold tax from payments not otherwise subject to withholding. Payees may be subject to backup withholding if they:
• Fail to give a TIN,
• Give an incorrect TIN,
• Supply a TIN in an improper manner,
• Under-report interest or dividends on their income tax return, or
• Fail to certify that they’re not subject to backup withholding for under-reporting of interest and dividends.
Backup withholding can apply to most kinds of payments reported on Form 1099, including:
• Interest payments,
• Dividends,
• Patronage dividends, but only if at least half of the payment is in money,
• Rents, profits or other income,
• Commissions, fees or other payments for work performed as an independent contractor,
• Payments by brokers and barter exchange transactions,
• Payments by fishing boat operators, but only the portion that’s in money and represents a share of the proceeds of the catch,
• Payment card and third-party network transactions, and
• Royalty payments.
Backup withholding also may apply to gambling winnings that aren’t subject to regular gambling withholding. To stop backup withholding, the payee must correct any issues that caused it. They may need to give the correct TIN to the payer, resolve the underreported income and pay the amount owed, or file a missing return. Payers report any backup withholding on Form 945,
Annual Return of Withheld Federal Income Tax. The 2018 form is due January 31, 2019. For more information about depositing backup withholding taxes, see Publication 15, Employer’s Tax Guide. Payers also show any backup withholding on information returns that they furnish to their payees and file with the IRS.



Social Security and Supplemental Security Income (SSI) benefits for more than 67 million Americans will increase 2.8 percent in 2019, the Social Security Administration announced today.

The 2.8 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 62 million Social Security beneficiaries in January 2019. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2018. (Note: some people receive both Social Security and SSI benefits). The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.

Some other adjustments that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $132,900 from $128,400.  The tax rate on Social Security wages and self-employed net income remain unchanged.

The 7.65% tax rate is the combined rate for Social Security and Medicare. The Social Security portion (OASDI) is 6.20% on earnings up to the applicable taxable maximum amount (see below). The Medicare portion (HI) is 1.45% on all earnings. Also, individuals with earned income of more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9 percent in Medicare taxes. The tax rates mentioned above do not include the 0.9 percent.

Social Security and SSI beneficiaries are normally notified by mail in early December about their new benefit amount. This year, for the first time, most people who receive Social Security payments will be able to view their COLA notice online through their my Social Security account. People may create or access their my Social Security account online at

If you have any questions regarding this info, please contact Steve Siesser at