The IRS is reminding small businesses that recent tax reform legislation lowered the backup withholding tax rate to 24% and the withholding rate that usually applies to bonuses and other supplemental wages to 22%. The agency also urged employers to encourage their employees to check their withholding using the IRS Withholding Calculator.
Backup withholding. Under a key change made by the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97) enacted in December 2017, the backup withholding tax rate dropped from 28 percent to 24 percent, effective Jan. 1, 2018. Backup withholding applies in various situations, including when a taxpayer fails to supply their correct taxpayer identification number (TIN) to a payer. Usually, a TIN is a Social Security number (SSN), but in some instances, it can be an employer identification number (EIN), individual taxpayer identification number (ITIN) or adoption taxpayer identification number (ATIN). Backup withholding also applies, following notification by the IRS, where a taxpayer under-reported interest or dividend income on their federal income tax return.
Bonuses and other supplemental wages. TCJA also lowered the tax withholding rates that normally apply to bonuses, back wages, payments for accumulated leave and other supplemental wages. In most cases, the new rate is 22 percent, effective Jan. 1, 2018. For payments exceeding $1 million, the rate is 37 percent. See Publication 15 for details. (IRS News Release IR-2019-88, May 6, 2019.)
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