Common Terminology

Vendors identified as foreign individuals, foreign companies, and non-resident aliens are required to report US earned- income to the IRS. The income is reported on an information return using the 1042-S form.

Entities that provide certain kinds of income to reportable vendors must file an information return (Form 1099) with the IRS. The information return shows how much reportable income the vendor earned during the course of the tax year. It also shows how much backup withholding or 3402(t) contract withholding was taken against a vendor, if applicable.

If the vendor is reportable, but has not provided complete, accurate tax information, backup withholding will reduce the payment amount made to the vendor based on a percentage fee.

Factors that determine whether a disbursement qualifies for backup withholding include: the type of vendor income, whether the object or balance sheet account is reportable, and the eligibility of the vendor itself.

3402(t) Contract Withholding threshold and percentage can be set up on the 1099P table. If Contract Withholding is enabled, then vendors are subject to a percentage withholding for payments, with exceptions. Contract Withholding will reduce the payment amount made to the vendor. Refer to the “Contract Withholding” topic in this user guide for more information.