Skip to content
BOL Conferences

Page 1 of 2 1 2
Thread Options
#1771453 - 01/02/13 02:57 PM Fiscal Cliff Deal-Backup Withholding Rate
lucyc Online
Diamond Poster
lucyc
Joined: Jul 2007
Posts: 1,074
It's my understanding that backup withholding rate on reportable payments were to increase from 28% to 31%.

Does anyone know if the increase was included in the final verson of the deal and if so when it is effective?

Return to Top
Operations Compliance
#1771469 - 01/02/13 03:19 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 85,059
Galveston, TX
I doubt if anyone has seen the actual bill at this point to see if it was addressed.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1771476 - 01/02/13 03:29 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
edAudit Offline
Power Poster
edAudit
Joined: Jul 2008
Posts: 4,810
You are here
as per media the bill is 157 pages and even congress has not read it. If it is only 157 pages there is a good chance that it has not been addressed.
_________________________
Opinions can be considered as coming from anywhere but my employer.

CAMS


Return to Top
#1771483 - 01/02/13 03:42 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
As you have noted, the rate was scheduled to go back to 31% for 2013. I recommend setting it at 31% unless and until the IRS issues advice to the contrary.
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#1771511 - 01/02/13 04:10 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
lucyc Online
Diamond Poster
lucyc
Joined: Jul 2007
Posts: 1,074
The following is an excerpt from the deal:


"HIGH-INCOME TAXPAYERS.—
(1) INCOME TAX RATES.—
(A) TREATMENT OF 25-, 28-, AND 33-PERCENT RATE BRACKETS.—Paragraph (2) of section 1(i) is amended to read as follows:
(2) 25-, 28-, AND 33-PERCENT RATE BRACKETS.—The tables under subsections (a), (b), (c), (d),
and (e) shall be applied—
(A) by substituting ‘25%’ for ‘28%’ each
place it appears (before the application of subparagraph (B)),
(B) by substituting ‘28%’ for ‘31%’ each place it appears, and
(C) by substituting ‘33%’ for ‘36%’ each place it appears.’’.

The excerpt refers to subsections a,b,c,d and e. What ACT includes the subsections they are referring to? I checked 26 USC 1 and I didn't find any threshold of 25%. Since the excerpt from the deal states "substituting 25% for 28%" I don't think this is the ACT the deal is referring to.

Thoughts/Comments

Return to Top
#1771517 - 01/02/13 04:15 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 85,059
Galveston, TX
Those are tax brackets and do not deal with backup withholding. I would follow John's advice and wait for further guidance from the IRS.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1771526 - 01/02/13 04:22 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
lucyc Online
Diamond Poster
lucyc
Joined: Jul 2007
Posts: 1,074
OK, Thanks.

Return to Top
#1771528 - 01/02/13 04:24 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
StevenD Offline
Gold Star
StevenD
Joined: Nov 2000
Posts: 489
KY
I asked the IRS about this last week and got this response.

IRC 3406 Backup withholding directs a payor to " deduct and withhold from such (reportable) payment a tax equal to the product of the fourth lowest rate of tax applicable under section 1(c)". At this time congress has not made a decision about the 2013 backup withholding rate. Please check www.irs.gov for any future changes.
_________________________
Opinion expressed are my own and not necessarily those of my employer.

Return to Top
#1771537 - 01/02/13 04:35 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
Leave it to the IRS to make their instructions convoluted and cryptic.
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#1771541 - 01/02/13 04:38 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
edAudit Offline
Power Poster
edAudit
Joined: Jul 2008
Posts: 4,810
You are here
This appears to be all on the website.

The rates are as follows: 31% for payments made through August 6, 2001; 30.5% for payments made after August 6 through December 31, 2001; 30% for payments made in 2002; and 28% for payments made in 2003 through December 31, 2012. For payments made after December 31, 2012, the rate increases to 31%.

http://www.irs.gov/pub/irs-pdf/p1335.pdf
_________________________
Opinions can be considered as coming from anywhere but my employer.

CAMS


Return to Top
#1771549 - 01/02/13 04:43 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
And that's what I would go with unless the IRS updates the information pursuant to the "deal" legislation.
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#1771559 - 01/02/13 04:57 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
StevenD Offline
Gold Star
StevenD
Joined: Nov 2000
Posts: 489
KY
I disagree. That is old "pre-deal" information.

I think we should keep the rate at 28% because the 'deal' only changed the highest tax bracket.
_________________________
Opinion expressed are my own and not necessarily those of my employer.

Return to Top
#1771567 - 01/02/13 05:05 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
lucyc Online
Diamond Poster
lucyc
Joined: Jul 2007
Posts: 1,074
What do my fellow bankers think?

Are you going to to leave the rate at 28% or increase it to 31%?

I'm trying to get a consensus so I can inform my deposit ops personnel.

Return to Top
#1771575 - 01/02/13 05:19 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
StevenD Offline
Gold Star
StevenD
Joined: Nov 2000
Posts: 489
KY
For what it may be worth, the IRS document cited above, Publication 1335, was posted to the IRS website on August 23, 2012.

Here is the source directory...

http://www.irs.gov/pub/irs-pdf/
_________________________
Opinion expressed are my own and not necessarily those of my employer.

Return to Top
#1771582 - 01/02/13 05:31 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
edAudit Offline
Power Poster
edAudit
Joined: Jul 2008
Posts: 4,810
You are here
I am with John on this (It is noted that as an auditor I have no say) but the publication (or any other that I can find) does not say anything about the cliff.

If we see something that is in the signed deal (or posted on the website) then we can change.
_________________________
Opinions can be considered as coming from anywhere but my employer.

CAMS


Return to Top
#1771591 - 01/02/13 05:48 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
CAllen506 Offline
New Poster
Joined: Sep 2012
Posts: 12
I have gone with the 31% until told otherwise by the IRS. I tried to get through to the IRS today but was disconnected after being on hold an hour.

I can always change it back if something definitive comes out.

Return to Top
#1771656 - 01/02/13 07:59 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
edAudit Offline
Power Poster
edAudit
Joined: Jul 2008
Posts: 4,810
You are here
_________________________
Opinions can be considered as coming from anywhere but my employer.

CAMS


Return to Top
#1771696 - 01/02/13 08:43 PM Re: Fiscal Cliff Deal-Backup Withholding Rate edAudit
RebekahL CRCM Offline
Platinum Poster
RebekahL CRCM
Joined: Feb 2003
Posts: 880
Big Sky Country
I *think* this is a searchable version: linky dink
_________________________
Me, Type A? Maybe - I'm not done analyzing it yet.

Return to Top
#1771704 - 01/02/13 08:49 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
Amazing, that countless economists, tax professionals and others will have read all of this before many of the members of congress who voted on the bill.

After scanning it quickly, I think it's very possible that the backup withholding rate, which is tied to the individual tax percentage rates, will be 28% when the dust settles.
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#1771705 - 01/02/13 08:50 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,656
The Swamp
It is if you convert it to the .pdf version...but I'm not sure what the end result was~! crazy
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1771719 - 01/02/13 09:02 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
lucyc Online
Diamond Poster
lucyc
Joined: Jul 2007
Posts: 1,074
I spoke to a representative with the IRS, she advised me to change the rate to 31% based on what was stated in Publication 1335.

She stated that what was on hold was the changes to the federal income tax withholding tables.

What I'm really confused about now is all I heard was that these changes were only going to affect a small percetage of Americans which contradicts with the excerpt from the bill that I referred to in my earlier post. The excerpt is a follows:

"HIGH-INCOME TAXPAYERS.—
(1) INCOME TAX RATES.—
(A) TREATMENT OF 25-, 28-, AND 33-PERCENT RATE BRACKETS.—Paragraph (2) of section 1(i) is amended to read as follows:
(2) 25-, 28-, AND 33-PERCENT RATE BRACKETS.—The tables under subsections (a), (b), (c), (d),
and (e) shall be applied—
(A) by substituting ‘25%’ for ‘28%’ each
place it appears (before the application of subparagraph (B)),
(B) by substituting ‘28%’ for ‘31%’ each place it appears, and
(C) by substituting ‘33%’ for ‘36%’ each place it appears.’’.

Return to Top
#1771721 - 01/02/13 09:03 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
Pale Rider Offline
10K Club
Pale Rider
Joined: Aug 2002
Posts: 34,318
under the Lone Star
I read the Senate received the 150+ pages just 3 minutes before they passed it, another one of the infamous "we must pass it to know what's in it". This makes the sausage factory product pristine looking.
_________________________
Societies that do not find work in and of itself "pleasing to God and requisite to Man," tend to be highly corrupt.


Return to Top
#1771730 - 01/02/13 09:13 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
RebekahL CRCM Offline
Platinum Poster
RebekahL CRCM
Joined: Feb 2003
Posts: 880
Big Sky Country
That's what I thought at first too, lvc. I was going off of Pub 1335, since the Congressional bill didn't explicitly state the backup withholding rates. However, like John pointed out, those withholding rates are based on the 4th tier of individual tax rates. Since those DID change, I think the final result will be that withholding rates will change to match.

I feel for the IRS reps, to be honest. They are likely being inundated with calls on something that barely squeeked by less than 48 hours ago!
_________________________
Me, Type A? Maybe - I'm not done analyzing it yet.

Return to Top
#1771732 - 01/02/13 09:17 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
RebekahL CRCM Offline
Platinum Poster
RebekahL CRCM
Joined: Feb 2003
Posts: 880
Big Sky Country
Helpful KPMG link about backup withholding rates: Here
_________________________
Me, Type A? Maybe - I'm not done analyzing it yet.

Return to Top
#1771735 - 01/02/13 09:19 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
And on which they undoubtedly received no advance information.

The small percentage of Americans affected are those with incomes over $400,000 a year ($450K for joint filers). The reason all those withholding tables are being amended is because the law in effect on 1/1/13 at a minute after midnight raised all those rates because the so-called "Bush-era" cuts had all expired. Your taxes and mine would be a lot higher if the "deal" wasn't cut. So it looks like the "deal" changed them all back to whatever they were in 2012, except for the folks at the top of the income heap.
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#1771774 - 01/02/13 10:05 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
edAudit Offline
Power Poster
edAudit
Joined: Jul 2008
Posts: 4,810
You are here
So it looks like the "deal" changed them all back to whatever they were in 2012, except for the folks at the top of the income heap.


John the Social Security witholding taxes rates were raised (cuts were no longer extended) for all of us working stiffs 2%.
_________________________
Opinions can be considered as coming from anywhere but my employer.

CAMS


Return to Top
#1771815 - 01/03/13 01:18 AM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
Yup.
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#1771835 - 01/03/13 01:12 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
lucyc Online
Diamond Poster
lucyc
Joined: Jul 2007
Posts: 1,074
I'm going to keep it at 31% until the IRS publishes a final notice to the contrary.

Unless I'm totally missing something, which is highly possible, what are the income thresholds for the following changes? It doesn't seem to me that these changes are only effecting the consumers that make over $400k.

"HIGH-INCOME TAXPAYERS.—
(1) INCOME TAX RATES.—
(A) TREATMENT OF 25-, 28-, AND 33-PERCENT RATE BRACKETS.—Paragraph (2) of section 1(i) is amended to read as follows:
(2) 25-, 28-, AND 33-PERCENT RATE BRACKETS.—The tables under subsections (a), (b), (c), (d),
and (e) shall be applied—
(A) by substituting ‘25%’ for ‘28%’ each
place it appears (before the application of subparagraph (B)),
(B) by substituting ‘28%’ for ‘31%’ each place it appears, and
(C) by substituting ‘33%’ for ‘36%’ each place it appears.’’.

Return to Top
#1772177 - 01/03/13 07:31 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
lucyc Online
Diamond Poster
lucyc
Joined: Jul 2007
Posts: 1,074
FYI, the IRS just posted the following regarding changes to the income tax withholding tables:

http://www.irs.gov/uac/Newsroom/IRS-Provides-Updated-Withholding-Guidance-for-2013

Unfortunately these changes do not coincide with the excerpt from the Fiscal Cliff deal that I provided in my earlier post.
For example, per the fiscal cliff 28% was to be substituted with 31% however I see no reference to 31% in the withholding tables.

So basically I still have the same core issue/questions

1. Should I change the backup withholding rate to 31% based on Publication 1335 or leave it a 28% since the fourth income bracket per the 2013 withholding rate tables is still 28?
2. How does what is stated regarding the substitutions listed in the Fiscal cliff deal come into play? Is is possible that the 2013 Withholding rates on the IRS website are incorrect?

Return to Top
#1772179 - 01/03/13 07:34 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,656
The Swamp
Maybe I'm just totally missing something...but lvc, it seems you are interpreting this backwards.

It says (above) to subsitute 28% for 31%...not 31% for 28%. Is that, perhaps, what is throwing you off? (no pun intended! laugh )
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1772186 - 01/03/13 07:42 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 85,059
Galveston, TX
Those are payroll withholding tables and have nothing to do with backup withholding.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1772197 - 01/03/13 07:57 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
edAudit Offline
Power Poster
edAudit
Joined: Jul 2008
Posts: 4,810
You are here
from the website it has not been updated since the rate expired in 2011 (if they did not post for last year, what makes us think we will have a quick answer)

Backup Withholding Program ("B" and " C" Programs) Overview
1.There are two separate Backup Withholding (BWH) programs that require payers to withhold at the backup withholding rate from recipients’ (payees’) payment of Form 1099 income.

2.The backup withholding rate is 28% for payments made after December 31, 2002. This new rate expires December 31, 2010.

http://www.irs.gov/irm/part5/irm_05-019-003r.html
_________________________
Opinions can be considered as coming from anywhere but my employer.

CAMS


Return to Top
#1772202 - 01/03/13 08:01 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
lucyc Online
Diamond Poster
lucyc
Joined: Jul 2007
Posts: 1,074
So what are the tables that the deal is referring to? If they are the income tax tables then since I was informed that the backup withholding rate for deposit accounts that are missing tins or have invalid tins is associated with the fourth income bracket then wouldn't this change from 28% to 31% based on what is stated in the deal?

Return to Top
#1772204 - 01/03/13 08:04 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,656
The Swamp
Please forgive my ignorance...but if I'm not mistaken, they had already updated the tables to the old rates that should have gone back into effect had the 'deal' not been signed. All they are doing is putting it back where it was for the last couple or so years. SO, it's not changing from 28 to 31...it's changint the 31 back to 28.

As far as actual backup withholding (as opposed to payroll)...I don't think that's really known yet.
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1772212 - 01/03/13 08:10 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 85,059
Galveston, TX
I would hope that everyone has something better to do then argue all day on this subject that probably impacts .000001% of all accounts. I would just wait for IRS clarification.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#1772214 - 01/03/13 08:13 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
edAudit Offline
Power Poster
edAudit
Joined: Jul 2008
Posts: 4,810
You are here
As far as actual backup withholding (as opposed to payroll)...I don't think that's really known yet.


That is correct, they did not even post the amounts for 2011 in their overview yet alone 2012 or 2013.
_________________________
Opinions can be considered as coming from anywhere but my employer.

CAMS


Return to Top
#1772452 - 01/04/13 03:00 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
Amen to Randy. There are a lot more important fish to fry right now, although I appreciate that setting the backup withholding rate is probably an annual start-of-year checklist item for many operations folks.
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#1772473 - 01/04/13 03:22 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
lucyc Online
Diamond Poster
lucyc
Joined: Jul 2007
Posts: 1,074
I agree and I'm moving on.

As always, thanks for all your help and patience.

Return to Top
#1778113 - 01/18/13 08:06 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
NeverEndingSupport Offline
100 Club
Joined: Jan 2004
Posts: 210
Alaska
How many of you have gone ahead and changed your backup withholding rate to 31%?

Return to Top
#1778321 - 01/21/13 09:56 AM Re: Fiscal Cliff Deal-Backup Withholding Rate NeverEndingSupport
Elwood P. Dowd Offline
10K Club
Elwood P. Dowd
Joined: Aug 2001
Posts: 21,939
Next to Harvey
The most efficient and effective "compliance" technique is to refuse to maintain interest bearing accounts for people who are subject to backup withholding.

This wasn't a cost efficient method for collecting taxes when we were paying 5% interest. Today, it's simply ridiculous; e.g. 31% of .50%?
_________________________
In this world you must be oh so smart or oh so pleasant. Well, for years I was smart. I recommend pleasant.

Return to Top
#1790572 - 03/01/13 04:42 PM Re: Fiscal Cliff Deal-Backup Withholding Rate lucyc
StevenD Offline
Gold Star
StevenD
Joined: Nov 2000
Posts: 489
KY
Instructions for 2013 Forms 1099-INT and 1099-OID posted to the IRS web-site yesterday.
http://www.irs.gov/pub/irs-pdf/i1099int.pdf

Box 4. Federal Income Tax Withheld
Enter backup withholding. For example, if a recipient does not furnish its TIN to you in the manner required, you must backup withhold at a 28% rate on payments required to be reported in box 1 (which may be reduced by the amount reported in box 2), box 3, and box 8 on this form.

The other related publications (505, 1281, 1335) have not yet been updated with the current rate which did not change from last year.
Last edited by StevenD; 03/01/13 04:46 PM.
_________________________
Opinion expressed are my own and not necessarily those of my employer.

Return to Top
#1790639 - 03/01/13 06:01 PM Re: Fiscal Cliff Deal-Backup Withholding Rate StevenD
Elwood P. Dowd Offline
10K Club
Elwood P. Dowd
Joined: Aug 2001
Posts: 21,939
Next to Harvey
Thank you. Now, maybe this thread can sink beneath the waves. grin
_________________________
In this world you must be oh so smart or oh so pleasant. Well, for years I was smart. I recommend pleasant.

Return to Top
Page 1 of 2 1 2

Moderator:  Andy_Z, John Burnett