Backup withholding is a procedure used to ensure that federal income tax is paid on earnings even though the recipient cannot be identified by a Social Security number. Banks, brokers, and other entities report nonwage earnings paid out on IRS Form 1099. When the form cannot be filed because it lacks the taxpayer's Social Security number, 28% (through December 31, 2012) of the interest, dividends, or fees is withheld by the payer and remitted to the federal government.
A contractor is an individual or company who contracts to do work for another party. Independent contractors take on specific tasks while maintaining control over the means and methods of executing the job.
An exempt organization is a type of entity that is exempt from federal income tax under the Internal Revenue Code (IRC) based on its purpose and organizational structure. These organizations are commonly known as nonprofits or not-for-profits.
Household workers are individuals employed to perform domestic work in a private residence, such as nannies, housekeepers, and caretakers. Notably, federal income tax withholding is not required on payments made to household workers, but Social Security taxes must be paid.
Payroll taxes are taxes levied on wages and salaries. They include federal and state income tax, Social Security (FICA), and unemployment insurance.
A specific kind of nonprofit organization in the United States exempted from federal income tax under section 501(c)(3) of the Internal Revenue Code. These organizations must fulfill certain criteria related to purpose, earnings, lobbying, and political activities.
The W-4 Form is used by new employees and existing employees who wish to change the number of personal exemptions claimed for tax withholding purposes. This form directly impacts the amount of federal income tax withheld from an employee's paycheck.
