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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:

2001	30.5%
2002-2003	30%
2004-2005	29%
2006-	28%

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.

© 2001, 2005