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Backup Withholding for Individuals, Businesses, and Government Entities

Backup withholding is a type of income tax withheld on specific income types when the payee fails to:

  • Provide the payer a verifiable taxpayer identification number (TIN).
  • Certify exemption from backup withholding.

Payments to independent contractors, trust distributions, rents or royalties, distributions to domestic (U.S.) nonresident partners/members/beneficiaries/shareholders, estate distributions, elective withholding, elective withholding/Indian tribe, allocations to foreign (non-U.S.) nonresident partners/members, or other California source income payment.

  • California residents: Any payments they receive regardless of the source.
  • Nonresidents: Any payments they receive from California source income.
    • See FTB Pub. 1017, Resident and Nonresident Withholding Guidelines, for information about California source income.

Backup withholding:

  • Replaces all other types of withholding.
  • Cannot be reduced or waived.
  • Does not apply to California real estate withholding.

Payers who perform backup withholding and remit it to the Internal Revenue Service (IRS) must do the same with us with certain limited exceptions. Payers must:

  • Withhold and remit if they pay income to a resident or nonresident at certain minimum levels according to IRS requirements unless payments result from:
    • Interest and dividends (that IRS Forms 1099-INT, 1099-DIV, 1099-OID, and 1099-PATR report).
    • Any loan funds released by a financial institution during in the normal course of business.
  • Withhold 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.

Amount to withhold and remit

Payers must withhold, report, and remit 7 percent of California income payments.

Exempt payees

Certain payees are exempt, such as government entities and tax-exempt organizations. For a complete list, refer to IRS Form W-9.

Payer withholds incorrect amounts

The payer may refund any incorrect amounts they withheld before the end of the calendar year if they haven’t paid us and they withheld:

  • In error
  • Too much

The payer must refund incorrect amounts before the end of the calendar year. They can adjust subsequent withholding amounts they pay us if they already sent the incorrect amount.

Use these forms to report and remit backup withholding:

Form Use When
Form 592, Resident and Nonresident Withholding Statement Submitting resident and nonresident backup withholding information to us.
Form 592-V, Payment Voucher for Resident and Nonresident Withholding Remitting resident and nonresident backup withholding to us.
Form 592-F, Foreign Partner or Member Annual Return Submitting foreign partner and member backup withholding information to us.
Form 592-A, Payment Voucher for Foreign Partner or Member Withholding Remitting foreign partner or member backup withholding to us.
Form 592-B, Resident and Nonresident Withholding Tax Statement (electronic version) Providing the payee with an information statement.

Claiming backup withholding credit

Provide us with your TIN (SSN, ITIN, FEIN, or CA Corp Number) before you file your tax return to receive credit for your backup withholding. Contact us as soon as you receive your Form 592-B. We deny your backup withholding credit if you fail to provide your TIN.

You must claim the withholding amount your Form 592-B shows when you file the applicable return:

  • Form 540, California Resident Income Tax Return
  • Form 540NR, California Nonresident or Part-Year Resident Income Tax Return (Long Form)
  • Form 541, California Fiduciary Income Tax Return
  • Form 109, California Exempt Organization Business Income Tax Return
  • Form 100, California Corporation Franchise or Income Tax Return
  • Form 100S, California S Corporation Franchise or Income Tax Return

We issued the following letters concerning California backup withholding on proceeds from broker and barter exchange transactions (1099-B) to our stakeholders:

Composite statement for Form 592-B
"Composite statement" means one in which two or more required IRS statements (for example, Forms 1099-B and 1099-DIV) are furnished to the recipient on one document.

When brokers report Form 592-B information on a composite statement, they must follow specific requirements in conformity with Internal Revenue Code (IRC) Section 6045. Brokers must provide the composite statement to the recipient on or before February 15.

In addition to requirements imposed by the Internal Revenue Service (IRS) for composite statements, the California Franchise Tax Board (FTB) imposed requirements to include the following Form 592-B information to the recipient on one document. A composite statement is an acceptable Form 592-B substitute only if the recipient’s payment type and tax withheld from it are as clear as if you furnished Form 592-B itself.

Do not file a composite statement with the IRS or FTB. As the IRS requires, provide it to the recipient on or before February 15 of the year following the calendar year of payment.

To create a composite statement acceptable for California purposes, you must:

  • Designate each statement separately. (For example: 1099-INT statement information, 1099-DIV statement information, etc.)
  • Include in each statement all the requisite Form 592-B information.
  • State clearly in the composite statement that both federal and state information is reported.
  • Locate and block together all Form 592-B information on the statement and separate from any IRS information covering other types of payments included on the form.
  • Place all Form 592-B information after all IRS information.
  • Display prominently at the beginning of Form 592-B information the word California in boldface, then the tax year, and California form number and name.
  • Identify clearly all applicable box captions and numbers, using the same wording and numbering as on the official Form 592-B.
  • Display prominently at the end of Form 592-B information the word, End, in boldface.
  • The composite statement must contain all applicable Form 592-B recipient instructions provided on the front and back of the official Form 592-B. You may provide those instructions on separate sheets of paper.
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