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Deduct federal backup withholding from contractors

SOLVEDby QuickBooks60Updated November 03, 2023

Learn when and how you might need to set aside federal withholding for contractors.

What's federal backup withholding?

Federal backup withholding is when the IRS determines that payments to a vendor or contractor are subject to Federal Income Tax at a rate of 24% for reportable payments.

You must withhold backup withholding on certain payments if you didn't get a TIN (Tax Identification Number) or you got an invalid TIN from your vendor. If you are not sure if the TIN is valid, this IRS website offers TIN matching e-services for certain payers to validate name and TIN combinations.

Contractors can claim they are exempt from backup withholding when they complete the W-9. Follow the IRS guidelines in Instructions for the Requester of Form W-9 for more information.

If you do not collect backup withholding from affected payees as required, you could be liable for the amounts. For additional information on backup withholding see IRS publication 1281.

Deduct federal backup withholding

QuickBooks Online or QuickBooks Desktop: you can add a line/expense to the check to account for the federal backup withholding. The amount must be entered as a negative amount to reduce the total pay to the vendor.

QuickBooks Contractor Payments without QuickBooks accounting: you can't collect backup withholding on your contractor payments.

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