TLDR:
When a business hires an independent contractor, the employer is generally not responsible for withholding income taxes, Social Security, or Medicare taxes from their compensation. However, by law, business taxpayers who pay nonemployee compensation of $600 or more must report these payments to the IRS. They do this using Form 1099-NEC, Nonemployee Compensation.
Generally, payers must file Form 1099-NEC by January 31. There is no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.
Nonemployee compensation reportable on Form 1099-NEC is subject to backup withholding if a payee has not provided a Taxpayer Identification Number to the payer or the IRS notifies the payer that the payee provided a TIN that does not match their name in IRS records.
A TIN can be one of the following numbers:
Social Security
Employer identification
Individual taxpayer identification
Adoption taxpayer identification
What is backup withholding?
Backup withholding can apply to most kinds of payments reported on Forms 1099 and W-2G. The person or business paying the taxpayer doesn't generally withhold taxes from certain payments; however, there are situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income. The payer's requirement to withhold taxes from payments not otherwise subject to withholding is known as backup withholding. The current backup withholding tax rate is 24%.
If you have additional questions regarding your taxes, we can help you here at RP Financial Services. Contact us at (720) 712-7724 or book a FREE consultation using the link: https://calendly.com/rpfs/consult-with-ea
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