Guide to Global Payroll Management - 2020 - D-54

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Guide to Global Payroll Management

Payments Exempt From Backup
Withholding

In that case, you may rely on the Form W-9 for purposes of
obtaining the payee's TIN, but you must treat the payee as
non-exempt. If the payee failed to enter an exempt payee code,
but the classification selected indicates that the payee is
exempt, you may accept the classification and treat the payee as
exempt unless you have actual knowledge that the classification
is not valid.

Payments that are not subject to information reporting also are
not subject to backup withholding. For details, see sections
6041, 6041A, 6042, 6044, 6045, 6049, 6050A, 6050N, and
6050W and their regulations. The following payments generally
are exempt from backup withholding.

If the payee is not exempt, you are required to backup
withhold on reportable payments if the payee does not provide a
TIN in the manner required or does not sign the certification, if
required.
1. An organization exempt from tax under
section 501(a), any IRA, or a custodial account under section
403(b)(7) if the account satisfies the requirements of section
401(f)(2);
2. The United States or any of its agencies or
instrumentalities;
3. A state, the District of Columbia, a U.S. commonwealth or
possession, or any of their political subdivisions, agencies, or
instrumentalities;
4. A foreign government or any of its political subdivisions,
agencies, or instrumentalities;
5. A corporation;
6. A dealer in securities or commodities required to register
in the United States, the District of Columbia, or a U.S.
commonwealth or possession;
7. A futures commission merchant registered with the
Commodity Futures Trading Commission;
8. A real estate investment trust;
9. An entity registered at all times during the tax year under
the Investment Company Act of 1940;
10. A common trust fund operated by a bank under
section 584(a);
11. A financial institution;
12. A middleman known in the investment community as a
nominee or custodian; or
13. A trust exempt from tax under section 664 or described in
section 4947.

Dividends and patronage dividends.
* Payments to nonresident aliens subject to withholding under
section 1441.
* Payments to partnerships not engaged in a trade or business
in the United States and that have at least one nonresident alien
partner.
* Payments of patronage dividends not paid in money.
* Payments made by certain foreign organizations.
* Section 404(k) distributions made by an ESOP.

Interest payments.
* Payments of interest on obligations issued by individuals.
However, if you pay $600 or more of interest in the course of
your trade or business to a payee, you must report the payment.
Backup withholding applies to the reportable payment if the
payee has not provided a TIN or has provided an incorrect TIN.
* Payments described in section 6049(b)(5) to nonresident
aliens.
* Payments on tax-free covenant bonds under
section 1451.
* Payments made by certain foreign organizations.
* Mortgage or student loan interest paid to you.

Other types of payment.
* Wages.
* Distributions from a pension, annuity, profit-sharing or stock
bonus plan, any IRA, an owner-employee plan, or other deferred
compensation plan.
* Distributions from a medical or health savings account and
long-term care benefits.
* Certain surrenders of life insurance contracts.
* Distribution from qualified tuition programs or
Coverdell ESAs.
* Gambling winnings if regular gambling winnings withholding is
required under section 3402(q). However, if regular gambling
winnings withholding is not required under section 3402(q),
backup withholding applies if the payee fails to furnish a TIN.
* Real estate transactions reportable under
section 6045(e).
* Cancelled debts reportable under section 6050P.
* Fish purchases for cash reportable under
section 6050R.

The following types of payments are exempt from backup
withholding as indicated for payees listed in 1 through 13 above.

Interest and dividend payments. All listed payees are exempt
except the payee in item 7.
Broker transactions. All payees listed in items 1 through 4 and
6 through 11 are exempt. Also, C corporations are exempt. A
person registered under the Investment Advisers Act of 1940
who regularly acts as a broker also is exempt.

Payees and Account Holders Exempt
From FATCA Reporting

Barter exchange transactions and patronage dividends.
Only payees listed in items 1 through 4 are exempt.

Reporting under chapter 4 (FATCA) with respect to U.S. persons
generally applies only to foreign financial institutions (FFI)
(including a branch of a U.S. financial institution that is treated as
an FFI under an applicable intergovernmental agreement (IGA)).
Thus, for example, a U.S. financial institution maintaining an
account in the United States does not need to collect an
exemption code for FATCA reporting. If you are providing a
Form W-9, you may pre-populate the FATCA exemption code
with "Not Applicable," "N/A," or a similar indication that an
exemption from FATCA reporting does not apply. Any payee that
provides such a form, however, cannot be treated as exempt
from FATCA reporting. For details on the FATCA reporting
requirements, including specific information regarding which
financial institutions are required to report, see sections 1471 to
1474 and related regulations. See Regulations section
1.1471-3(d)(2) for when an FFI may rely on documentary

Payments reportable under sections 6041 and 6041A.
Payees listed in items 1 through 5 generally are exempt.
However, the following payments made to a corporation and
reportable on Form 1099-MISC, Miscellaneous Income, are not
exempt from backup withholding.
* Medical and health care payments.
* Attorneys' fees (also gross proceeds paid to an attorney,
reportable under section 6045(f)).
* Payments for services paid by a federal executive agency.
(See Rev. Rul. 2003-66, which is on page 1115 of Internal
Revenue Bulletin 2003-26 at IRS.gov/pub/irs-irbs/irb03-26.pdf.)

Payments made in settlement of payment card or third party network transactions. Only payees listed in items 1 through
4 are exempt.
Instr. for Req. of Form W-9 (Rev. 10-2018)

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Guide to Global Payroll Management - 2020

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