Backup Withholding: What Businesses Should Know

Jul 1, 2026 | Tax & Accounting

In most cases, you aren’t required to withhold taxes from payments to independent contractors. However, there are situations in which the “backup withholding” rules apply. Backup withholding is most commonly required when a contractor fails to provide a correct Social Security number or Employer Identification Number, or doesn’t properly complete Form W-9, “Request for Taxpayer Identification Number and Certification.”

When required, you must withhold 24% from payments to the contractor and remit those funds to the IRS using Form 945, “Annual Return of Withheld Federal Income Tax.” The withheld amount must also be reported on the appropriate Form 1099.

Contact the office if you’re unsure whether backup withholding applies or need help navigating the requirements.

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