Tax & Accounting Blog

Federal Backup Withholding rate remains at 28%

1099, ONESOURCE, Tax Information Reporting January 4, 2013

With the enactment of the American Taxpayer Relief Act of 2012, the backup withholding rate remains 28%.  The Act, passed by the United States Senate and House on January 1, was signed by the President on January 2.  If Congress had failed to act, the rate of federal backup withholding would have increased to 31% when the 2012 personal income tax rates expired.

The American Taxpayer Relief Act retains the prior-year marginal  tax rates, with the modification that a 39.6 percent rate applies above the new thresholds of $400,000 for an individual filer, $425,000 for a head-of-household filer, and $450,000 for married-filing-jointly.  The backup withholding rate is linked to the 4th lowest marginal tax rate.  The lowest rate is 10%; then 15%; then 25%; then 28% (4th lowest rate and the backup withholding rate); then the higher bracket rates.

The federal backup withholding law and regulations require payers to withhold tax from certain Form 1099-reportable payments in certain conditions including an incorrect Taxpayer Identification Number for the reportable payee, or missing a Taxpayer Identification Number for a reportable payee.  Payments that may be subject to backup withholding include interest, dividends, rents, royalties, commissions, non-employee compensation, and other payments including broker proceeds and barter exchange transactions, reportable gross proceeds paid to attorneys, and certain payments made by fishing boat operators.