Quote:
Originally Posted by bnorth
Just got a $495.40 payment from another member. Paypal told me if I didn't want them to hold 24% for IRS backup withholding I needed to add a tax ID or my SS# if/when I hit the $600 limit.
Just a heads up for anyone who didn't know.
|
Was wondering, if/when that may happen. When someone that is supposed to be issuing 1099s to people doesn't properly do that, or say they did and the info they sent to the IRS doesn't match the name, ID#, etc. of the person/party receiving the 1099, the party that issued the 1099 is going to get contacted by the IRS and told to get the info correct, or initiate the backup withholding. If they do not, and they also continue sending 1099s to someone without the backup withholding, the IRS can then stick them with the liability of what they were supposed to withhold from the party they were sending the 1099 to, and/or disallow them the tax deduction related to the payments they were making to the person/party being reported on the 1099.
In this instance, Paypal is being proactive and telling people up front, give us your correct tax ID info so we can properly send you a 1099-K form at the end of the year, or we're taking out the 24% backup withholding from you right now, so if you don't give us the correct tax info, the IRS doesn't come looking for us. And if you end up having too much backup withholding taken out and paid to the IRS, then you'll have to file a tax return and report your business income/expenses to ever be able to claim a possible refund from over withheld backup withholding taxes.
And before any screaming or yelling starts, these backup withholding laws and rules have been around for a long, long time. This isn't anything new.