New Form W-4 (2016)

Purpose. Complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. Consider completing a new Form W-4 each year and when your personal or financial situation changes. Exemption from withholding. If you are exempt, complete only lines 1, 2, 3, 4, and 7 and sign the form to validate it. Your exemption for 2016 expires February 15, 2017. See Pub. 505, Tax Withholding and Estimated Tax.

Exceptions. An employee may be able to claim exemption from withholding even if the employee is a dependent, if the employee: • Is age 65 or older, • Is blind, or • Will claim adjustments to income; tax credits; or itemized deductions, on his or her tax return.

 

Complete the Personal Allowances Worksheet on Form W-4

Basic instructions. If you are not exempt, complete the Personal Allowances Worksheet below. The worksheets on page 2 further adjust your withholding allowances based on itemized deductions, certain credits, adjustments to income, or two-earners/multiple jobs situations. Complete all worksheets that apply. However, you may claim fewer (or zero) allowances. For regular wages, withholding must be based on allowances you claimed and may not

What is head of household filing status?

Head of household. Generally, you can claim head of household filing status on your tax return only if you are unmarried and pay more than 50% of the costs of keeping up a home for yourself and your dependent(s) or other qualifying individuals. See Pub. 501, Exemptions, Standard Deduction, and Filing Information, for information.

 

Head of Household Tax Credits

Tax credits. You can take projected tax credits into account in figuring your allowable number of withholding allowances. Credits for child or dependent care expenses and the child tax credit may be claimed using the Personal Allowances Worksheet below. See Pub. 505 for information on converting your other credits into withholding allowances. Nonwage income. If you have a large amount of nonwage income, such as interest or dividends, consider making estimated tax payments using Form 1040-ES, Estimated Tax for Individuals. Otherwise, you may owe additional tax. If you have pension or annuity income, see Pub. 505 to find out if you should adjust your withholding on Form W-4 or W-4P

 

Form W-4 and Multiple Jobs

Two earners or multiple jobs. If you have a working spouse or more than one job, figure the total number of allowances you are entitled to claim on all jobs using worksheets from only one Form W-4. Your withholding usually will be most accurate when all allowances are claimed on the Form W-4 for the highest paying job and zero allowances are claimed on the others. See Pub. 505 for details. Nonresident alien.You may need to complete the Two-Earners/Multiple Jobs Worksheet on Form W-4 if you have more than one job, a working spouse, or are also receiving a pension. Also, on this worksheet you can add any additional withholding necessary to cover any amount you expect to owe other than income tax, such as self-employment tax.

 

Taxes Withheld from Paychecks

In most situations, the tax withheld from your pay will be close to the tax you figure on your return if you follow these two rules.

  • You accurately complete all the Form W-4 worksheets that apply to you.
  • You give your employer a new Form W-4 when changes occur.

What effects withholding amounts?

But because the worksheets and withholding methods don’t account for all possible situations, you may not be getting the right amount withheld. This is most likely to happen in the following situations.
  • You are married and both you and your spouse work.
  • You have more than one job at a time.
  • You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income.
  • You will owe additional amounts with your return, such as self-employment tax.
  • Your withholding is based on obsolete Form W-4 information for a substantial part of the year.
  • Your earnings are more than the amount shown under Check your withholding in the instructions at the top of page 1 of Form W-4.
  • You work only part of the year.
  • You change the number of your withholding allowances during the year.

 

Supplemental Form W-4 Instructions for Nonresident Aliens

If you are a nonresident alien, see Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens, before completing this form. Check your withholding. After your Form W-4 takes effect, use Pub. 505 to see how the amount you are having withheld compares to your projected total tax for 2016. See Pub. 505, especially if your earnings exceed $130,000 (Single) or $180,000 (Married). Future developments. Information about any future developments affecting Form W-4 (such as legislation enacted after we release it) will be posted at www.irs.gov/w4.

 

Nonresident aliens and Form W-4

Nonresident aliens must follow special instructions when completing Form W-4, Employee’s Withholding Allowance Certificate, for compensation paid to such individuals as employees performing dependent personal services in the United States. Compensation for dependent personal services includes amounts paid as wages, salaries, fees, bonuses, commissions, compensatory scholarships, fellowship income, and similar designations for amounts paid to an employee.

If you are an alien individual (that is, an individual who is not a U.S. citizen), specific rules apply to determine if you are a resident alien or a nonresident alien for federal income tax purposes. Generally, you are a resident alien if you meet either the “green card test,” or the “substantial presence test,” for the calendar year. Any alien individual not meeting either test is generally a nonresident alien. Additionally, a dual-resident alien who applies the so-called “tie-breaker” rules contained within the Resident (or Residence or Fiscal Residence) article of an applicable U.S. income tax treaty in favor of the other Contracting State is treated as a nonresident alien. See Publication 519, U.S. Tax Guide for Aliens, for more information on the green card test and the substantial presence test.

 

Form 1099-MISC Miscellaneous Filing Requirement

Let’s spend a little time talking about Form 1099-MISC miscellaneous filing requirements, backup withholding and the recent increases to information return penalties. Even though businesses use the form 1099-MISC to report their payments to nonemployees to the IRS, the issue is so closely related to employment tax, that it bears discussion today. The Internal Revenue Code requires a business to report payments to the IRS for services rendered by non-employees if the business paid the non-employee $600 or more during the calendar year.

 

Reportable Payments in Box 7, Nonemployee Compensation, on Form 1099-MISC

Businesses that make reportable payments to non-employees in the course of their business must report those payments in Box 7, Nonemployee Compensation, on Form 1099-MISC. Also, the payer must remember to furnish a copy of the Form 1099-MISC to the recipient or payee, and to file a copy of the 1099-MISC with the IRS. That is an important point to remember. A business should always secure the Taxpayer Identification Number, or TIN, for the workers it makes reportable payments to, so the business can properly report those payments on the Form 1099.

 

Form W-9, Request for Taxpayer Identification Number and Certification

You can use Form W-9, Request for Taxpayer Identification Number and Certification, to obtain the payee or recipient’s TIN. There are exceptions to the Form 1099-Miscellaneous filing requirements. For example, currently, payments to corporations, including limited liability companies that are treated as a C or S corporation, generally aren’t required to be reported on Form 1099-Miscellaneous unless the payments were for legal services and medical or health-care services. Does a business have to withhold reportable payments it makes no nonemployees?

 

Backup withholding for reportable payments to certain individual

Yes, there are situations that call for businesses to make what we call backup withholding for reportable payments to certain individuals. In 1983, the backup withholding provisions of Internal Revenue Code Section 3406 set forth the requirements for withholding from certain reportable payments. Presently, the backup withholding rate is 28%; however, although the rate has generally remained at 28%, the rate could change, so make sure you consult the IRS website to ensure that you’re using the appropriate withholding rate for your specific year.

 

Payers of reportable payments

Payers of reportable payments must withhold federal income tax from such payments, if the payee fails to provide the payer with a taxpayer identification number or provides one that is obviously incorrect; for example, a TIN with the wrong number of digits or a TIN that includes an alpha character, or the payee is notified by the IRS that the TIN provided by the payee is incorrect.

 

When do businesses have to start backup withholding for these workers?

When do businesses have to start backup withholding for these workers? Generally the payer must begin backup withholding on all reportable payments immediately at the time of the first payment if the payer never received the payee’s taxpayer identification number or discovers that the TIN provided is incorrect. In essence, as soon as the payer knows that there is a problem, they should start backup withholding. If the payer has been notified by the IRS that the payee’s TIN is incorrect, the payer should follow the instructions on the notice the IRS sends to the payer with respect to starting and stopping backup withholding. And how long should the business make backup withholding?

 

Where does the payer report these backup withholdings?

The payer should continue with backup withholding until the payee provides the payer with a valid taxpayer identification number. Where does the payer report these backup withholdings? Backup withholding withheld from non-employee compensation must be reported in Box 4 of Form 1099-Miscellaneous.

 

Form 1099-Miscellaneous

Payers must furnish a copy of Form 1099-Miscellaneous to the non-employee by January 31st and file a copy with the IRS by February 28th of the year following the year of the payment. I think we should note here that generally the payer may be liable for the tax required to be withheld, whether or not the payer made the proper withholding from the payee’s compensation. Also, the payer reports and remits the backup withholding to the IRS on Form 945, Annual Return of Withheld Income Taxes.

 

Are there any other consequences related to Form 1099, Reporting Compliance and Backup Withholding?

The IRS has compliance programs in place to review information returns, including Forms 1099 and to identify those with possible noncompliance related to backup withholding. There are potential penalties for such noncompliance, some of which have recently increased. The information return penalties are related to Code Sections 6721 and 6722. Section 6721 pertains to the failure to file correct information return, and Section 6722 pertains to the failure to furnish correct payee statements. The penalties per information return depend on when they were correctly filed, and the penalties have a maximum penalty per year.

Penalties for forgetting backup withholding

The revised penalty rates per information return for Code Section 6721 and 6722 are $50, $100, or $250 per information return, with maximum penalties of $500,000, $1.5 million, and $3 million per year. The recent increase in penalties applies to the returns in statements required to be filed after December 31st, 2015. There are also lower maximum penalties for small businesses, which are defined as taxpayers with gross receipts of not more than $5 million.

Increased penalty for forgetting backup withholding

As mentioned earlier, failure to backup withhold from reportable payments may result in penalties asserted using Internal Revenue Code Section 6672, Trust Fund Recovery Penalties. This is the penalty imposed on the responsible person we talked about earlier.

CP2100 or CP2100A, Backup Withholding Notice

When the IRS receives Forms 1099, the IRS matches the name and TIN for verification purposes. The IRS may send you a CP2100 or CP2100A, Backup Withholding Notice if the payee’s TIN is missing or obviously incorrect or the payee’s TIN doesn’t match the payee’s name. The CP2100 will include a list of payees with missing TINs and payees whose TIN and name do not match.

 

What do you do if you receive a CP2100 or CP2100A Notice?

What do you do if you receive a CP2100 or CP2100A Notice? The first step is to compare the listing with your records. The error could be an oversight or an error in your own records. If this is what happened, the only thing you should do is correct your records and update them. For missing or obviously incorrect TINs, determine if you are already backup withholding on payments made to that payee. If you are not, begin backup withholding immediately.

 

Incorrect TINs

You must also make up to three solicitations for the TIN — initial, first annual, second annual – to avoid a penalty for failing to include a TIN on the information return. For incorrect TINs, compare the accounts on the listing with your business records. If they agree, send the appropriate “B” Notice to the payee. A “B” Notice is a letter to the payee asking the payee to verify his or her TIN. The specific documentation the payee must provide, will depend on whether this is the first time the payee appeared on a CP2100 list. Specific instructions are included on the CP2100 Notice. Generally, you should begin backup withholding if a payee fails to respond to a “B” Notice within 30 days. It’s important to backup withhold when required and follow the instructions on the CP2100 Notice. If you don’t, you, the payer, may be held liable for any backup withholding that was required. In addition to backup withholding, a payer may also be subject to penalties for failure to file a correct information return if information is missing or incorrect or a payer fails to issue a required Form 1099.

 

 

Penalty for failure to file a correct Form 1099

The penalty for failure to file a correct Form 1099 is $100 per Form 1099. There is also a $100 penalty for failure to furnish Form 1099 to the payee. This concludes the video portion of our webinar, and we thank you for watching. If you would like to submit a question, select the Ask a Question link under the PowerPoint window and then click Submit.

 

Payments Subject to Backup Withholding

Rents, non-employee compensation for services, royalties, reportable gross proceeds paid to attorneys, and other fixed or determinable gains, profits, or income payments that are reportable on Form 1099-MISC, Miscellaneous Income.

Backup withholding does not apply to wages or pension payments.

 

“B” Notice

If the IRS sends you a CP2100 or CP2100A Notice indicating an incorrect payee TIN, you are required to send the “B” Notice within 15 days from the date you received it, or the date of the CP2100/2100A, whichever is later. See Publication 1281 for details. Begin backup withholding no later than 30 business days after the date of the CP2100 notice or the date you received it, whichever is later. Stop backup withholding no later than 30 days after the payee furnishes a TIN and certifies that it is correct.

What is an IRS B Notice?

A “B” Notice is when a business has mismatches on the 1099 between the name and the TIN or they have missing TINs. The business will receive a CP2100 Notice. And it will have procedures that they need to follow. And one of those procedures is for them to send a “B” Notice to the payees. The “B” Notice, it’s identified in the letter; and the “B” Notice basically is going to ask for the information from the payee, telling them that they need to provide their correct TIN to the payer. And it’s basically a form letter. And that can be found in Publication 1281.

 

Backup Withholding and Form 1099 Miscellaneous

What is Backup Withholding and Form 1099?

Backup withholding requirements may apply to information returns that you file. The most common information return backup withholding would be reported on Form 1099. You may be required to withhold a specified percentage of certain reportable payments made to recipients, payees, under the law.

 

Form W-9 and Backup Withholding

For example, if you pay a service vendor, and the vendor has not provided the information requested on Form W-9, you should withhold federal income tax at 28 percent. Some other situations. The IRS alerts you to the fact that there’s a problem with an information return you filed, and you might need to withhold some payments you make to that vendor in the future. Perhaps it is a missing or incorrect Taxpayer Identification Number, also referred to as TIN. A TIN may be a Social Security Number issued by Social Security Administration, or an Employer Identification Number, EIN, issued by the IRS. A valid TIN is made up of exactly 9 numbers, and cannot contain letters.

 

Common payments subject to backup withholding

Some of the more common payments subject to backup withholding include interest, dividends, rents, royalties, commissions, reportable gross proceeds paid to attorneys, and nonemployee compensation. Backup withholding rate is 28 percent. Some of the payments that are excluded from backup withholding are real estate transactions, foreclosures and abandonments, retirement accounts, state and local government income tax refunds, and distributions from Archer Medical Savings Accounts. You may need to withhold from payments when a payee does not provide a Taxpayer Identification Number, or provides a Taxpayer Identification Number that we identify as being incorrect when we process the Form 1099 information return. Usually, a payer — you — collects this information on a Form W-9 prior to payment.

 

Form W-9 and Backup Withholding

The Form W-9 was revised in December 2014. You can go to our website, IRS.gov, to obtain the most current version of this form. Some payees may be exempt from backup withholding. For example, taxexempt organizations, government agencies, certain payments to corporations, and other entities listed in the Form W-9 instructions. Notice that the Form W-9 includes a separate line for the LLC classification. As a reminder, LLC stands for limited liability company, not a limited liability corporation. An LLC may be a corporation, partnership, or a single member LLC. There’s a space on the form to indicate which classification applies. The payee must fill in this space so you know if you should issue a Form 1099.

 

When to issue a Form 1099

Let’s go over some reminders on when to issue a Form 1099. Entities who have paid, in the course of trade or business, $600 or more for rents, services, prizes and awards, medical or health care payments, gross proceeds to an attorney, and certain other payments, are required to report these types of payments on Form 1099-Miscellaneous. Individuals and partnerships would get Form 1099, whereas most corporations wouldn’t. The exception to corporations whom you would have to file a Form 1099 for are medical and health care services, and attorneys. The term attorney includes a law firm or other provider of legal services. So even if they are incorporated, they still receive a Form 1099 if paid 600 or more. Payments that you don’t have to report on Form 1099-Miscellaneous are merchandise; wages paid to employees, including fringe benefits; payments of rent to real estate agents; payments to a tax-exempt organization; and corporations, unless the corporation is one of the exceptions listed in that second sub-bullet.

 

CP2100 and CP2100A Notices

CP2100 and CP2100A notices the IRS sends out to inform the payer that they may be responsible for backup withholding. The notice includes a list of missing, incorrect, or not currently issued payee TINs. Large volume filers, those who have 250 or more error documents, receive a CD or DVD data file CP2100. Mid-sized filers receive a paper CP2100 notice. And small filers will receive the paper CP2100A notice. Even if you haven’t you received a CP2100 notice, you may still be required to begin backup withholding in certain circumstances. If a vendor refuses or neglects to provide a TIN, you should withhold on any reportable payment. Continue to request the identifying information, and monitor payments you make to the vendor to ensure that either withholding is applied or the vendor has complied with your request for all identifying information on the Form W-9 or its equivalent. You must obtain a TIN from a payee even for a one-time transaction.

 

CP2100A Notice

If you do not, the law allows the IRS to charge a penalty if appropriate. You might receive a CP2100 notice if the IRS received an information return with taxpayer information that appears to be incorrect. For example, an identification number is considered incorrect when the TIN is displayed in the proper format, but the name/TIN combination doesn’t match our records. Or the TIN can’t be found in the IRS and/or the Social Security Administration files. If you refer to Publication 1281, entitled Backup Withholding for Missing and Incorrect Name TINs, you can read about the IRS matching process using name controls, and what you should do when you open an account for a payee.

 

CP2100 Notice

If you receive a CP2100 notice stating certain information is incorrect, the first thing you should do is compare the notice with the information that you have on file. Check your records first, and compare them with what the IRS has on record. If the notice indicates that you have missing TINs, check to confirm whether you already backup withhold on the account. If not, the next time you pay the vendor, begin backup withholding until you receive the TIN. You might wonder what IRS considers a missing TIN, as you are certain all the 1099s you filed had TINs on them. Well, a TIN is considered to be missing if it has more or less than 9 numbers, or it has an alpha character as one of the 9 numbers. You must make up to three solicitations or attempts to collect a TIN — the initial, first notice, and second notice — to avoid a penalty for failing to include a TIN on the information return. Document and keep your attempts to collect the correct vendor information. Remember, you’re obligated to take these steps.

 

Penalty for failure to deposit backup withholding

The IRS can assess a penalty for failure to deposit backup withholding for not filing a return such as the Form 945, and failing to pay associated taxes with the return. If you are subject to penalties, these penalties may be subject to interest once they are assessed. If you confirm that the information in your files is incorrect as it is, you are required to send what is called a “B” Notice within 15 days from the date you received the CP2100 notice, or the date the CP2100 or 2100A notice, whichever is later. See Publication 1281 for details.

 

When to Begin Backup Withholding

Begin backup withholding no later than 30 business days after the later of the date of the CP2100 notice or the date you received it. If the payee furnishes a TIN and signs the W-9 for a valid replacement, you should stop backup withholding no later than 30 days later. You must make the solicitation, a request for a payee’s correct TIN, to satisfy the backup withholding requirements and to avoid a penalty for filing another information return with a missing or an incorrect TIN. Your payee must furnish a certified TIN with the first solicitation on Form W-9 for payments of interest, dividends, and amounts subject to broker reporting. For other payments, the payee may furnish — provide a TIN in any manner.

 

Starting Backup Withholding

Begin backup withholding on payments made to payees who do not return a signed Form W-9 in response to the first “B” Notice, no later than 30 business days after the date of the CP2100 or CP2100A notice, or the date you received it, whichever is later. However, you may begin backup withholding the day after the date you received the CP2100 notice. Stop backup withholding no later than 30 calendar days after you receive the signed Form W-9 from the payee. You may stop backup withholding at any time within that 30 calendar day period.

 

Contact IRS About Backup Withholding

 

Setting Correct Tax Withholding in 2015

The IRS reminds taxpayers to pay taxes earlier, it is better and easier to select the correct amount of withholding tax than paying fines or penalties at tax time. In addition to wages, the IRS withholds other types of income, such as pensions, bonuses, commissions, and gambling winnings. Normally, taxpayers should attempt to match your withholding with your current tax liability. If not retained sufficient tax, they debited taxes at the end of the year, and they may have to pay interest and penalties. If they hold them too many taxes, they will lose access to the money until you receive your refund.

 

When should taxpayers check your withholding tax?

  • When a contributor get a big refund, or learns that he has an unexpected balance.
  • In any time arising financial or personal changes that could affect their tax liability, such as marriage, divorce, having a child or buying a House.
  • When occur changes in the law of the federal tax that would affect your tax liability.

 

How to check the amount of tax deducted

 

Use the IRS withholding calculator at IRS.gov. This tool is easy to use and helps to calculate the taxpayer’s federal tax employer withhold the correct amount of taxes from your paycheck. This is particularly useful if you have retained too much or too few taxes in the past, if your situation has changed, or started a new job. Taxpayers can also use leaves work and tables in the publication 505: tax withholding and estimated tax to see if they retained the correct amount of tax.

 

How to change the amount of tax withheld

Certain events during the year may change the marital status of the taxpayer or exemptions, adjustments, deductions or credits that expected to claim on your return. When this happens, taxpayers need to give your employer a new form W-4, certificate of withholding taxes of the employee  to change the state of your withholding or number of exemptions.

Taxpayer Completing Form W4

In general, taxpayers should give your employer a new form W-4 within 10 days after any of the following events:
  • A divorce, if they have been using the marital status married declaring altogether, or
  • Any event that decreases the number of exemptions that can claim.

 

Other considerations related to tax withholding

  • The taxpayers, who bought in the 2015 health coverage through the health insurance market, must report changes in market circumstances as they occur. Report changes in your salary or your family size. This will help taxpayers to avoid too much or too little in advance of the tax credit of premium. Receive too little or too much in advance can affect the amount of your refund or the amount that I might owe when you file your tax return. To get help and make it properly see the estimate of change in circumstances.
  • The taxpayers must include additional Medicare and the tax of net income of investment when they calculate the withholding and estimated tax. If they are affected by these tax taxpayers may request that employers deducted them and retain an additional amount of taxes from wages on Form W-4.

More Information About Form W-4 Withholding

For more information about this and other tax topics visit www.irs.gov/Individuals.