IRS Form 945 reports federal income taxes that have been withheld from non-employees. Employers must let the IRS know about backup withholding if they deduct this tax from these individuals' pay.
Payments to non-employees are normally reported to the IRS using a version of Form 1099. No withholding of income tax is normally required from these payments, but business owners can find themselves in a position where they must deal with backup withholding and this requires filing Form 945.
The IRS requires that payees take backup withholding from non-employee payments in several different circumstances, including when the payee doesn't have a valid taxpayer ID number. The backup withholding rate is 24% as of 2020. It was 28% prior to 2018.
What Is Form 945?
IRS Form 945 is an annual return, summarizing all the federal income taxes you withheld under backup withholding requirements from all payees, not including employees.
Form 945 pertains only to what the IRS calls "nonpayroll payments." These can be for individuals who are paid by your company for services they perform as independent contractors, but other types of payments fall into this category as well. Form 945 is a summary form, showing all the different
For example, you would give an independent contractor a 1099-NEC form in January in the year immediately following the year in which they performed services for you. If the person worked for you in 2020, you must file the report by the end of January 2021.
For everyone you took backup withholding payments from you must have a W-9 form on file for that person or business. The most important information on the W-9 form is the person's taxpayer ID number (Social Security number, Employer ID, or other). The IRS states that you must withhold taxes from the payments you make to this person through backup withholding if their tax ID number on the form is missing or incorrect. This requires filing Form 945.
Who Uses Form 945?
Form 945 isn't reserved just for independent contractors. There are also some other types of payments that your business might make that are subject to backup withholding and would require you to withhold income taxes and report those taxes to the IRS on Form 945. The IRS calls this "non-payroll income tax withholding." You would use Form 945 if you made payments including:
- Rents, profits, or other income
- Gambling winnings and Indian gaming profits that aren't subject to regular withholding
- Interest and dividend payments
- Some government payments
Form 945 basically corresponds with any payments that are made and reported on one of the various Forms 1099-MISC, 1099-NEC, or on Form W-2G (for gambling winnings.
Where to Get Form 945
Form 945 is available on the IRS website. It's interactive, so you can complete it online and print it out.
How to Fill Out Form 945
Information you must report on Form 945 includes:
- All federal income tax withheld from all individuals subject to backup withholding
- Total backup withholding calculated at total pay for all individuals times 24%
- Total deposits made during the year
- Balance due or overpayment
You must break down the total to show monthly tax liability if you pay more than $2,500 in backup withholding during the year (total amounts paid times 24%).
Can Form 945 Be E-Filed?
You can file Form 945 using the IRS e-file system, and you can make backup withholding payments to the IRS electronically using the EFTPS system.
You can file Form 945 and make deposits of backup withholding together if you're using tax preparation software or the services of a tax professional.
Where to Mail Form 945
Addresses for sending the form by regular mail depend on your state, whether you're an exempt organization, and whether you're also remitting payment. The IRS publishes a list of the addresses on its website broken down by state and these other factors.
Requirements for Form 945
You would be required to file Form 945 if, for example, you had a freelance web designer working for you last year that you paid as an independent contractor. You requested a W-9 form from this individual, but you never received it. Now the IRS has sent you a notice that backup withholding payments must be made.
You generally don't have to start taking backup withholding from payments from independent contractors until you're notified to do so by the IRS.
You must now take several steps:
- Notify the worker that you'll be withholding income taxes from payments.
- Process payments for that worker to include backup withholding at the 24% rate.
- Include the withholding information on the person's payment stub.
- Deposit the backup withholding amounts. You don't have to withhold Social Security or Medicare taxes from these payments.
- Make periodic payments of the amounts withheld to the IRS.
- Give the person a 1099 form (either 1099-MISC or 1099-NEC) in January of the following year. The 1099 form would include the total backup withholding amount for that person for that year.
- Report the total backup withholding for all non-employees and others on Form 945 by January 31 of the following year.
Form 945 is filed with the IRS at the same time you would file W-2 forms and 1099 forms. Filing Form 1099-NEC or 1099-MISC doesn't relieve you of the responsibility to file Form 945 in addition to the other form. Form 945 doesn't go to the payee.
Backup withholding payments are made the same as withholding from employees, using the rules for determining whether to make deposits semi-weekly or monthly.
- Form 945 is used to report to the IRS taxes withheld from non-payroll payments made for a variety of reasons.
- One source of these withheld taxes is backup withholding, but some gambling winnings and military retirement benefits must have taxes withheld and these would be reported on this form as well.
- You might be required to take backup withholding from payments to independent contractors if they fail to give you a correct tax identification or Social Security number.
- The form is available online and can be e-filed.