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Backup Withholding

Purpose of bulletin

Starting January 1, 2010, payers, including individuals, businesses, and government entities that are required to withhold and remit backup withholding to the IRS, are also required to withhold and remit to the Franchise Tax Board.

Background

ABX4 18 added R&TC §18664.

Beginning January 1, 2010, payers must withhold and remit seven percent of reportable income to California when performing federal backup withholding (with certain limited exceptions). If a payer pays income to a nonresident or to a resident at certain minimum levels as required by the IRS, then California backup withholding is required, except for:

  • Payments of interest and dividends (reported on IRS Forms 1099 INT, 1099 DIV, 1099 OID, and 1099 PATR).
  • Any release of loan funds made by a financial institution in the normal course of business. 

When do payers backup withholding?

Payers backup withholding when a payee submits IRS Form W-9 that:

  • Does not provide a taxpayer identification number (TIN).
  • Provides an invalid TIN.
  • Fails to certify exemption from backup withholding.

Exempt payees

Certain payees are exempt from backup withholding, including tax exempt organizations. To get a complete list, see IRS Form W-9.

Taxpayer inquiries

Taxpayers can call our automated line at 888.792.4900, or 916.845.4900 (if outside the United States), Monday through Friday, 8 am to 5 pm, except state holidays.

They may also fax information to 916.845.9512.