Page 43 - 2020 Publication 17

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
payments. If you don't pay enough tax, either Unemployment These payments generally aren’t subject to
through estimated tax or withholding, or a com- withholding. However, “backup” withholding is
bination of both, you may have to pay a penalty. Compensation required in certain situations. Backup withhold-
See Underpayment Penalty for 2020 at the end ing can apply to most kinds of payments that
of this chapter. You can choose to have income tax withheld are reported on Form 1099.
from unemployment compensation. To make The payer must withhold at a flat 24% rate in
Pensions and Annuities this choice, fill out Form W-4V (or a similar form the following situations.
provided by the payer) and give it to the payer.
Income tax will usually be withheld from your All unemployment compensation is taxable. • You don't give the payer your TIN in the re-
quired manner.
pension or annuity distributions unless you If you don't have income tax withheld, you may
choose not to have it withheld. This rule applies have to pay estimated tax. See Estimated Tax • The IRS notifies the payer that the TIN you
to distributions from: for 2021, later. gave is incorrect.
If you don't pay enough tax, either through
• A traditional individual retirement arrange- withholding or estimated tax, or a combination • You are required, but fail, to certify that you
ment (IRA); of both, you may have to pay a penalty. See Un- aren’t subject to backup withholding.
• A life insurance company under an endow- derpayment Penalty for 2020 at the end of this • The IRS notifies the payer to start withhold-
ment, annuity, or life insurance contract; chapter. ing on interest or dividends because you
have underreported interest or dividends
• A pension, annuity, or profit-sharing plan; on your income tax return. The IRS will do
• A stock bonus plan; and Federal Payments this only after it has mailed you four noti-
ces.
• Any other plan that defers the time you re- You can choose to have income tax withheld
ceive compensation. from certain federal payments you receive. Go to IRS.gov/Businesses/Small-
The amount withheld depends on whether These payments are the following. Businesses-Self-Employed/Backup-
Withholding for more information on kinds of
you receive payments spread out over more 1. Social security benefits. payments subject to backup withholding.
than 1 year (periodic payments), within 1 year
(nonperiodic payments), or as an eligible roll- 2. Tier 1 railroad retirement benefits. Penalties. There are civil and criminal penal-
over distribution (ERD). Income tax withholding 3. Commodity credit corporation loans you ties for giving false information to avoid backup
from an ERD is mandatory. choose to include in your gross income. withholding. The civil penalty is $500. The crimi-
More information. For more information on 4. Payments under the Agricultural Act of nal penalty, upon conviction, is a fine of up to
$1,000 or imprisonment of up to 1 year, or both.
withholding on pensions and annuities, includ- 1949 (7 U.S.C. 1421 et seq.), as amen-
ing a discussion of Form W-4P, see Pensions ded, or title II of the Disaster Assistance Estimated Tax for 2021
and Annuities in chapter 1 of Pub. 505. Act of 1988, that are treated as insurance
proceeds and that you receive because: Estimated tax is the method used to pay tax on
Gambling Winnings a. Your crops were destroyed or dam- income that isn't subject to withholding. This in-
Income tax is withheld at a flat 24% rate from aged by drought, flood, or any other cludes income from self-employment, interest,
dividends, alimony, rent, gains from the sale of
natural disaster; or
certain kinds of gambling winnings. assets, prizes, and awards. You may also have
Gambling winnings of more than $5,000 b. You were unable to plant crops be- to pay estimated tax if the amount of income tax
from the following sources are subject to in- cause of a natural disaster described being withheld from your salary, pension, or
come tax withholding. in (a). other income isn't enough.
• Any sweepstakes; wagering pool, includ- 5. Any other payment under federal law as Estimated tax is used to pay both income
ing payments made to winners of poker determined by the Secretary. tax and self-employment tax, as well as other
tournaments; or lottery. To make this choice, fill out Form W-4V (or a taxes and amounts reported on your tax return.
• Any other wager, if the proceeds are at similar form provided by the payer) and give it If you don't pay enough tax, either through with-
least 300 times the amount of the bet. to the payer. holding or estimated tax, or a combination of
It doesn't matter whether your winnings are paid If you don't choose to have income tax with- both, you may have to pay a penalty. If you
in cash, in property, or as an annuity. Winnings held, you may have to pay estimated tax. See don't pay enough by the due date of each pay-
not paid in cash are taken into account at their Estimated Tax for 2021, later. ment period (see When To Pay Estimated Tax,
fair market value. If you don't pay enough tax, either through later), you may be charged a penalty even if you
withholding or estimated tax, or a combination are due a refund when you file your tax return.
Exception. Gambling winnings from bingo, of both, you may have to pay a penalty. See Un- For information on when the penalty applies,
keno, and slot machines generally aren’t sub- derpayment Penalty for 2020 at the end of this see Underpayment Penalty for 2020 at the end
ject to income tax withholding. However, you chapter. of this chapter.
may need to provide the payer with a social se-
curity number to avoid withholding. See Backup More information. For more information about Who Doesn't Have To Pay
withholding on gambling winnings in chapter 1 the tax treatment of social security and railroad
of Pub. 505. If you receive gambling winnings retirement benefits, see chapter 7. Get Pub. Estimated Tax
not subject to withholding, you may need to pay 225, Farmer's Tax Guide, for information about
estimated tax. See Estimated Tax for 2021, the tax treatment of commodity credit corpora- If you receive salaries or wages, you can avoid
later. tion loans or crop disaster payments. having to pay estimated tax by asking your em-
If you don't pay enough tax, either through ployer to take more tax out of your earnings. To
withholding or estimated tax, or a combination Backup Withholding do this, give a new Form W-4 to your employer.
of both, you may have to pay a penalty. See Un- See chapter 1 of Pub. 505.
derpayment Penalty for 2020 at the end of this Banks or other businesses that pay you certain Estimated tax not required. You don't have
chapter. kinds of income must file an information return to pay estimated tax for 2021 if you meet all
Form W-2G. If a payer withholds income tax (Form 1099) with the IRS. The information re- three of the following conditions.
from your gambling winnings, you should re- turn shows how much you were paid during the • You had no tax liability for 2020.
ceive a Form W-2G, Certain Gambling Win- year. It also includes your name and taxpayer
nings, showing the amount you won and the identification number (TIN). TINs are explained • You were a U.S. citizen or resident alien for
amount withheld. Report the tax withheld on in chapter 1 under Social Security Number the whole year.
Form 1040 or 1040-SR, line 25c. (SSN).
Chapter 4 Tax Withholding and Estimated Tax Page 39