Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

If a W-9 is not completed prior to payment, what percentage should the listing broker withhold?

1. 15%

2. 20%

3. 28%

4. 30%

The correct answer is: 28%

When a W-9 form is not completed prior to payment, the listing broker is required to withhold 28% of the payment due in accordance with IRS regulations. This withholding is mandated to ensure that the IRS receives proper tax reporting from the income earned by the payee. The W-9 form is essential because it provides the taxpayer identification information necessary for accurate tax reporting, and without it, the payer must default to the backup withholding rate specified by the IRS. The withholding rate of 28% is specifically noted as the backup withholding rate. This reflects IRS policies aimed at ensuring tax compliance, particularly in situations where the payee has either failed to provide their taxpayer information or has been reported for failing to report all of their taxable income in the past. By adhering to this regulation, the listing broker protects themselves from potential penalties associated with the failure to report and remit adequate tax amounts owed by the payee.