New tax law changes backup withholding rate

The Tax Cuts and Jobs Act reduced the backup withholding tax rate to 24 percent. When it applies, backup withholding requires a payer to withhold tax from payments not otherwise subject to withholding.

Payments subject to backup withholding include:

  • Interest payments
     
  • Dividends
     
  • Patronage dividends, but only if at least half of the payment is in money
     
  • Rents, profits or other income
     
  • Commissions, fees or other payments for work performed as an independent contractor
     
  • Payments by brokers and barter exchange transactions
     
  • Payments by fishing boat operators, but only the portion that's in money and represents a share of the proceeds of the catch
     
  • Payment card and third-party network transactions
     
  • Royalty payments

See IRS Publication 1281 for when backup withholding applies and other information.