Tax Bulletin (July 2001)
Impending August 7, 2001 Change
to Backup Withholding
Wainwright and James T. Chudy, tax
partners in the Palo Alto and New York offices, respectively,
Winthrop Shaw PittmanLLP.
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As part of the Economic Growth and Tax
Relief Reconciliation Act of 2001 (P.L. 107-16, the "Act"),
signed by President Bush on June 7, 2001, the rate applicable
under the backup withholding regime has been conformed to the
staged reduction in general income tax rates.
Section 101(c)(10) of the Act revises
Internal Revenue Code section 3406(a) to change the backup
withholding rate from 31 percent to "the fourth lowest rate of
tax applicable under [Internal Revenue Code] section 1(c)."
Following the rate reduction amendments
of Section 101(a) of the Act, that fourth lowest rate of tax
(because of introduction of the new 10 percent bracket) and,
accordingly, the backup withholding rate will be as follows for
the listed years:
Section 101(d)(2) of the Act provides
that the change to the backup withholding rate is effective
after the 60th day after the date of enactment of the Act, June
7, 2001. The 60th day after June 7, 2001 is August 6, 2001.
Thus, the 30.5 percent backup withholding rate will apply to
payments on or after August 7, 2001 and will decline on
January 1, 2002 in accordance with the foregoing schedule.
In Announcement 2001-80, the
Internal Revenue Service confirmed the 30.5 and 30 percent
rates and also listed its forms and publications affected by
the new rates.
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