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?

I doubt if anyone has seen the actual bill at this point to see if it was addressed.

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.

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.

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

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.

OK, Thanks.

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.

Leave it to the IRS to make their instructions convoluted and cryptic.

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

And that's what I would go with unless the IRS updates the information pursuant to the "deal" legislation.

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.

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.

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/

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.

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.

http://www.businessinsider.com/breaking-...al-cliff-2013-1


A copy of the "deal"

I *think* this is a searchable version: linky dink

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.

It is if you convert it to the .pdf version...but I'm not sure what the end result was~!

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.’’.

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.

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!

Helpful KPMG link about backup withholding rates: Here

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.