1099 Tax Software Blog

When do you apply backup withholding?

A payer typically withholds 28% on any payments if the payee fails to furnish a correct taxpayer identification number (TIN) to the payer. The state of California, unlike other states, requires an additional 7% backup withholding if the payer is already required to withhold 28% by the IRS and if the total payment of California source income for the calendar year exceeds $1,500.

The California Franchise Tax Board (FTB) created Form 592 which is known as the “Resident and Nonresident Witholding Statement“.  Any individual or entity who makes payments of $1,500 or more of California Source Income to a person, corporation, partnership, fiduciary, partner, beneficiary, shareholder, member or vendor who is a non-resident of California and who does not have a permanent place of business in California, must remit Form 592 quarterly either by paper or electronically to the FTB.

There are 3-forms: 592, 592-B and 592-V.  Form 592 is the statement the withholding agent fills out, signs, dates and submits to the FTB.

Form 592-B is one page form that is sent to the payees and shows how much money was withheld.

Form 592-V is a voucher payment form. The payer sends any payment due with Forms 592 and 592-V to the Franchise Tax Board.

The payer or withholding agent should retain Form 592 for at least 4 years.  You can easily print a copy to PDF and retain that PDF file.

Electronic Delivery of 592-B

A payer or agent who withholds 7% to the payee can print Form 592-B and mail to the payee.

592-B has to be furnished to each payee typically by the end of each quarter.  592-B can printed on plain paper with black ink. Many withholding agents, from large to small, balk at the idea of printing and mailing 592-B to payees.  Postage, envelopes, addressing, stuffing and sealing all cost time and money increasing the overall cost of mailing to 78 cents to $1 or more per mailing.

The cost of mailing can be reduced by electronically delivering the information returns to the payees.

There is one catch.  And that is the payee must consent to receiving Form 592-B in an electronic format.  The withholding agent can put together a simple form that instructions when and how the payee will receive Form 592-B in electronic format and have the payee sign that consent form.

The payee has the option to withdraw consent.  Also, if the withholding agent correct a payee’s Form 592-B, then agent must furnish the corrected form within 30 business days.

There are many services for bulk electronically delivering 592-B to payees.  E-mail can be tracked to see who opens their email and who never opened the sent email with the information return.

By going completely paperless, you can save as much as 50% on priting and mailing 592-B tax forms.

by

Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

If you have any questions or comments about our software, feel free to contact us at any time.