Back-up Withholding Tax in Oracle Banking Retail Accounts

2.27 Back-up Withholding Tax in Oracle Banking Retail Accounts

This topic describes the processing of back-up withholding tax in Oracle Banking Retail Accounts.

If a bank customer is a taxpayer receiving certain types of income payments, the IRS requires the payer of these payments to report them on an information return. The person or business (bank) paying the customer doesn’t generally withhold taxes from these types of payments, as it is assumed the customer will report and pay taxes on this income when they file their federal income tax return.

There are situations when the bank is required to withhold at the current federal and state rate percent. This federal or state rate tax is taken from any future payments to ensure the IRS receives the tax due on this income. The situations are as below:

Under the BWH-B program because the customer failed to provide a correct taxpayer identification number (TIN) to the bank for reporting on the required information return.
Under the BWH-C program because the customer failed to report or underreported interest and dividend income they received on their federal income tax return.
Customer wants the bank to voluntarily deduct the backup withholding tax on interest payments. The rate of deduction can be any value as required by the bank customer.

Note:

The marking of the related accounts of a customer as applicable for BWH Tax, will be done basis an event from Oracle Banking Party Services. Wherein when a customer is identified as applicable for BWH Tax/ the customer has opted for voluntary deduction of BWH Tax, then it is expected that Oracle Banking Party Services will publish an event which will be consumed by Oracle Banking Accounts for marking and deducting the BWH Tax for the customer.

The new System Data Elements as TAX_APPLICABLE, and VOLUNTARY_TAX_RATE are introduced and can be used in defining the tax formula in interest and charges module.

Note:

For more details, refer to the Interest and Charges User Guide.

An account service has been enhanced to inculde the tax applicablity and voluntary tax rate fields. Basis this fields, the Backup with holding tax (federal/ state or voluntary) can be calcualted and applied for the account.

Parent topic: Operations