The IRS backup withholding rate is 24 percent. This means if an organization is making a $10,000 payment to an individual for services rendered that has a missing TIN or an invalid TIN as notified by the IRS, that the actual payment to the individual should be $7,600 and the remaining $2,400 is withheld and remitted or paid directly to the IRS.
As for enforcement of backup withholding, the IRS has recently started to crack down on audits—specifically Tier 1 audits—for organizations filing Form 1099s that are subject to backup withholding that have missing or invalid TINs and do not have withholding amounts reflected in Box 4 (Federal Income Tax Withheld) of that same Form 1099.
This increase in IRS enforcement stemmed from a series of TIGTA reports. In addition to the $9B backup withholding tax gap due to payors filing 1099 returns with missing or incorrect TINs, TIGTA also found in that there is an additional $1.9B tax gap where backup withholding is not being reported or is underreported on Form 945 when comparing to Form 1099s filed. Form 945 shows amounts actually remitted to the government, so this means while the payor is telling the recipient and government that they are backup withholding on Form 1099, it is not actually being remitted to the government via Form 945. Meaning the government may not have received the taxes it’s owed. In the previous scenario where the individual was to have $2,400 withheld, the correct way of reporting and remitting to the IRS is to have that amount on both Box 4 of Form 1099 and on Form 945.