Unless you’re a tax professional, mistakes are bound to happen when preparing documents and filing returns, such as inputting inaccurate information with the SSN or TIN that you provided to the IRS. Unfortunately, these issues could be costly and take some time to resolve.
You should not be subject to backup withholding if you provide your correct TIN/SSN, make the proper certifications, and report all your taxable interest and dividends on your tax return to the IRS. Businesses and financial institutions withhold a flat 24% of income as backup withholding for those taxpayers who are subject to the rule.
What’s Backup Withholding?
Backup withholding is a method the IRS uses to make sure that all taxes are paid on sources of income specific taxpayers have improperly reported in the past. To do so, the IRS asks the taxpayer to withhold a portion of payments, similar to the way an employer would do with your income check.
Backup withholding is not a concern for most taxpayers because most taxpayers supply the IRS with accurate information about themselves and properly record all interest and dividend payments.
How To Prevent Backup Withholding
To prevent backup withholding, you would need to correct the reason you became subject to backup withholding. This would include providing the correct TIN to the payer, resolving the underreported income and paying the amount owed, or filing the missing return(s).
Payments Excluded from Backup Withholding
Payments that are excluded from backup withholding:
Real estate transactions
Foreclosures and abandonments
Distributions from Archer MSAs
Long-term care benefits
Distributions from any retirement account
Distributions from an employee stock ownership plan
Fish purchases for cash
State or local income tax refunds
Qualified tuition program earnings
Resolve Your Tax Bills
If you’ve found yourself in a nasty mess with the IRS, take a deep breath. For taxpayers who may have difficulty paying off an excessive amount of tax debt, there’s a new and improved relief program that consolidates many major relief programs into a one-size-fits-all assistance program. Any issues regarding back taxes, unfiled years, or any other tax-related problems may be solved through one program; the IRS Fresh Start Program!
How Simple Is Qualifying?
Considering that the Fresh Start Program is a federal program, you would think meeting the qualifications may be very difficult, but really, it’s a lot simpler and quicker than you think. Take the following steps in order to find out if you are eligible in as little as 3 minutes.
- Fill out some basic information about yourself and your back taxes here.
- Have a representative reach out to you to discuss your eligibility.
- Go through the enrollment process and finally reduce or eliminate your tax liabilities.