Employers are required to engage in “backup withholding” at a rate of 31% for payments made to self-employed workers who do not disclose their social security number. The 31% is reported on the church’s 941 forms. Employers need the correct social security number to complete the worker’s Form 1099 MISC. The recently enacted Economic Growth and Tax Relief Reconciliation Act of 2001 decreases the backup withholding rate from 31% to 30.5% for amounts paid to self-employed persons after August 6, 2001. For amounts paid after December 31, 2001, the backup withholding rate will be 30% (2002-2003), 29% (2004-2005), and 28% (2006 and thereafter).
Key point. The backup withholding rate shown in the December 2000 edition of Form W-9 is incorrect for amounts paid after August 6, 2001. Form W-9 (and instructions) will be revised in December 2001 to reflect the new backup withholding rate for amounts paid after December 31, 2001. In addition, the backup withholding rate shown in the 2001 version of Form 1099 is incorrect for amounts paid after August 6, 2001. The 2002 version of this form (and instructions) will show the new backup withholding rate for amounts paid after December 31, 2001.
This content originally appeared in Church Treasurer Alert, September 2001.