Backup Withholdings and FATCA Reporting
Backup withholding is when a payer is required to withhold tax from payments not otherwise subject to withholdings. Per the IRS given instructions, generally individuals are not exempt from backup withholding.
Independent contractors may be subject to backup withholding if:
- You don’t give payer your TIN in required manner
- The IRS notifies the payer that the TIN you gave is incorrect
- The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. IRS will only do this after it has mailed you 4 notices over at least a 120 day period.
- You fail to certify that you’re not subject to backup withholding for underreporting of interest and dividends.
FATCA (Foreign Account Tax Compliance Act) requires that foreign financial institutions and certain other non financial foreign entities report on the foreign assets held by their U.S. account holders or be subject to withholding on withholdable payments.
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