If Form 1099-MISC ‘B’ records show tax withholding amounts that appear excessive in relation to the income amounts reported, this could indicate a mistake or a misunderstanding of how withholding should be applied and reported. Here’s how to handle this situation:
What Might Cause Excessive Withholding?
- Incorrect Withholding Calculation:
- Backup withholding (usually 24%) may have been calculated incorrectly, potentially applying the rate to the wrong base amount.
- Error in Data Entry:
- The withholding amount may have been entered incorrectly, leading to a mismatch between the reported income and tax withheld.
- Misclassification of Payments:
- Payments not subject to withholding may have been mistakenly classified as taxable and subjected to withholding.
- Double Reporting:
- The same payment might have been reported multiple times, artificially inflating the withholding amounts.
IRS Guidelines for Backup Withholding:
Backup withholding is required only under specific conditions:
- The recipient fails to provide a valid TIN.
- The IRS notifies you to begin backup withholding due to underreporting by the payee.
- The payment is subject to withholding, such as interest, dividends, or other taxable payments.
Payments typically not subject to withholding include:
- Most payments for merchandise, freight, or storage.
- Payments to corporations (except for attorneys or medical services).
