Backup Withholding

The State will institute Federal Backup Withholding on all State agency payments to vendors who have missing and/or incorrect name/tax identification numbers. This procedure is mandated by U. S. Internal Revenue Service (IRS) regulations. If a vendor is subject to Backup Withholding, 24% of all State payments payable to the vendor will be deposited in a non-interest bearing escrow account and transferred to the IRS.

The amount withheld during the tax year will be reported to the vendor and the Internal Revenue Service at the end of the calendar year on the applicable Federal Information Return Form 1099 MISC, 1099 INT, 1099 DIV, 1099-G or 1099-B. The vendors will be required to report the Backup Withholding amount withheld by the State as federal income tax withheld on their annual IRS tax return.

Vendors will be subject to Backup Withholding when the IRS notifies the General Accounting Division (GAD) that the vendor's name and taxpayer identification number (TIN) are incorrect. GAD will notify the vendor by letter to submit the correct name and TIN information to GAD within 30 days of the date of notification.

If the vendor does not provide GAD with the correct information, i.e., return the completed W-9 Form, GAD will begin Backup Withholding. GAD will notify vendors by letter each time that a payment is offset for Backup Withholding. The check remittance advice will also have the Backup Withholding capture information recorded on it (agency's original payment document number, invoice number, invoice date, invoice amount, and the Backup Withholding document number, and amount).

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