When your business hires independent contractors, you’re generally not responsible for withholding tax from their compensation. But there are circumstances in which you should withhold a certain percentage of tax (backup withholding) to help ensure the IRS receives it. The most common reason is that a contractor has failed to provide a valid Taxpayer Identification Number, such as a Social Security number. In such cases, you should withhold 24% of the payment and deposit that amount with the IRS using Form 945. At the end of the year, provide the contractor with a Form 1099 that reports the amount you paid and the amount you withheld.
Our Blog 