Backup Withholding

In Advantage Financial, the administration of 1099 Processing Options and Control (1099P), the 1099 Type of Income (TINC), 1099 Reporting Information (1099I), and 1042-S Reporting Information (1042I) tables can control the behavior of the Backup Withholding process. Backup Withholding can apply to most kinds of income that are reported on Form 1099. These include: interest payments, dividends, patronage dividends, rents, profits, gains, commissions, fees, independent contractor income, royalty payments, and payments by brokers. Under Tab 3406 of the Internal Revenue Code, a payer making certain payments to payees is required to withhold and pay to the IRS a specified percentage of applicable payments if one or more of the following conditions are met:

• The vendor does not furnish a Tax Identification Number (TIN) in the required manner.

• The IRS notifies the payer using CP2100 or CP2100A that the TIN number supplied by the vendor is incorrect.

• The vendor is required, but fails, to certify that they are not subject to Backup Withholding.

• The IRS notifies the payer using Notice CP543 to start withholding on interest or dividends because the vendor has underreported interest or dividends on their tax return.

The amount of tax withholding will be reported to the individual vendor on Form 1099/1042-S along with the detail of earned income. The payer must remit the total backup withholding amount to the IRS during the tax year. The frequency of this remittance is determined by the cumulative dollar amount that the payer withholds from vendor payments.

Backup withholding deductions will occur for a specific TIN when:

• 1099P has the Backup Withholding option selected for the Calendar Year,

• The 1099 Reportable flag is selected on 1099I for a specific TIN,

• The 1099 Backup Withholding Status is Eligible on 1099I for a specific TIN, and the Chart of Account element (Object, Sub Object, Balance Sheet Account or Sub Balance Sheet Account) used on the transaction is 1099 Reportable or the 1099 Backup Withholding status is not Eligible but the 1099-INT Backup Withholding flag is checked on 1099I for a specific TIN, and the Chart of Account element (Object, Sub Object, Balance Sheet Account or Sub Balance Sheet Account) used on the transaction has a 1099 Type of Income associated with the 1099-INT form,

• The Type of Income record (TINC) associated with the Chart of Account element has the Backup Withholding flag selected,

• The 1042-S Reportable flag is selected on 1042I for a specific TIN,

• The 1042-S Backup Withholding Status is Eligible on 1042I for a specific TIN, and the Chart of Account element (Object, Sub Object, Balance Sheet Account or Sub Balance Sheet Account) used on the transaction is 1042-S Reportable, and

• The 1042-S Type of Income (1042T) associated with the Chart of Account element has the Backup Withholding flag selected.

The actual withholding for Backup Withholding occurs when the disbursement is issued using a Manual Disbursement (MD) transaction or an Automated Disbursement (AD/EFT) transaction. Please refer to the "Calculate Backup Withholding on a Manual Disbursement" topic in the Advantage Disbursement User Guide for more discussion on the calculation and rules for taking backup withholding or the CGI Advantage Financial Accounts Payable Run Sheets Guide "Backup Withholding" section in the Automated Disbursement Chain job run sheet.

1099 Backup Withholding Exemption

1099 Transmitter Information