In chapter 5 you read the
WRITTEN words of law proving you don't have to fill out a Form W-4
unless you work for the government. In chapter 6 you read the
WRITTEN words of law proving that you don't have to fill out a Form W-9
if you are a private subcontractor not working for the
government.
If you are working for
yourself, you may run into a problem
where somebody says they
are required to backup withhold from you if you do not provide your
social security number to them. In this chapter you are going to
read the WRITTEN words of law that cover when and who must have backup
withholding.
TITLE 26 - INTERNAL
REVENUE CODE
Subtitle C - Employment Taxes
CHAPTER 24 - COLLECTION OF INCOME TAX AT SOURCE ON WAGES
Sec. 3406. Backup withholding
(a) Requirement to deduct and withhold
(1) In general
In the case of any reportable payment, if - (A) the payee fails to furnish his TIN to the
payor in the manner required, (B) the Secretary notifies the
payor that the TIN furnished by the payee is incorrect, (C) there has
been a notified payee underreporting described in subsection (c), or
(D) there has been a payee certification failure described in
subsection (d), then the payor
shall deduct and withhold from such payment a tax equal to [Blah, blah.]
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- If what you are paid is NOT a "reportable payment", there is no
requirement to backup withhold.
- If what you are paid is NOT a "reportable payment", there can not
be a "manner required" to
furnish a TIN.
- If there is no "manner
required" to furnish a TIN, no TIN is required and NO backup
withholding is required.
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Treasury Regulations
Sec. 31.3406(a)-1 Backup
withholding requirement on reportable
payments.
(a) Overview. Under [Internal Revenue Code]
section 3406, a payor must
deduct and withhold 31 percent
of a reportable payment if a condition for withholding
exists. Reportable payments
mean interest and dividend payments (as defined in section
3406(b)(2)) and other reportable
payments (as defined in [Internal Revenue Code] section 3406(b)(3)).
The conditions described
in paragraph (b)(1) of this section apply
to all reportable payments, including
reportable interest and dividend payments. The conditions described in
paragraph (b)(2) of this section apply only to reportable interest and
dividend payments.
(b) Conditions that invoke the backup
withholding requirement--(1) Conditions
applicable to all reportable payments. A payor of a reportable payment must
deduct and withhold under [Internal Revenue Code]
section 3406 if--
(i) The payee of the reportable
payment does not
furnish the payee's taxpayer
identification number to the payor, as required in section
3406(a)(1)(A) and Sec. 31.3406(d)-1; or ...
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The Treasury Regulations
have just told you basically the same thing as the IRC.
- If what you are paid is NOT a "reportable payment", backup
withholding can NOT be invoked.
- If what you are paid is NOT a "reportable payment", there can NOT
be a requirement in either of the sections listed to
furnish a TIN.
- If there is no requirement to furnish a TIN, no
backup
withholding can be invoked.
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Treasury Regulation
31.3406(d)-1 will be covered on the second page following this web
page. IRC section 3406(a)(1)(A) was coverd above.
Treasury Regulations
Sec. 31.3406(a)-2 Definition of payors
obligated to backup
withhold.
(a) In general. Payor means the
person that is required to make an
information return under section 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A, or 6050N, with respect to any reportable payment (as
described in section 3406(b)), or [other described payors that have no
bearing on this web page.]
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- If the payor is not required to make an information
return on what he pays you, the payor has no requirement to backup
withhold.
- Only IRC sections 6041 and 6041A(a) do not
immediately disqualify as not applicable to compensation for labor.
- Only IF IRC
sections 6041 and 6041A(a) apply to your
compensation for labor, would there be a requirement to backup withhold
for failure to furnish a TIN.
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