Commencing January 1, 2008, any person who makes a payment for services to an individual in Colorado that is reportable on a Form 1099 will be required to deduct and withhold Colorado income taxes at the rate of 4.63 percent if the individual (i) fails to provide a validated taxpayer identification number (“TIN”), or (ii) provides an Internal Revenue Service issued TIN issued for nonresident aliens. The new requirement was signed into law, as H.B. 1015, by Governor Bill Owens on July 31, 2006.
The new law also requires any entity, and any individual in the course of conducting a trade or business as a sole proprietor, that makes a payment for services to an independent contractor that is not reported on an information return (e.g., Form 1099) to deduct and withhold Colorado income taxes at the rate of 4.63 percent, unless the person making the payment has a validated TIN from the independent contractor.
For these purposes a “validated TIN” is a social security number or an Internal Revenue Service Individual Taxpayer Identification Number (“ITIN”) that has been confirmed by the person making the payment through a portal that the State of Colorado will establish, or through some other means that the Colorado Department of Revenue (the “Department”) has approved, (i) as having been assigned by the Social Security Administration or Internal Revenue Service to the individual to whom payment is made, or (ii) in the case of an ITIN, as not having been assigned as a TIN issued for nonresident aliens. The new law requires the Department to develop a portal that will verify the correctness of a service provider’s TIN or ITIN.
The new withholding requirements do not apply to any individual who is exempt from federal withholding pursuant to a properly filed IRS form 8233 if a copy of such form has been filed with the Department.
