What is backup withholding?
Backup withholding is the provisional withholding of a percentage of your income from investments, such as dividends or interest, to cover any income tax that you might owe. Normally your investment income is not subject to income tax withholding, like your salaries and wages are. But there are situations when the payers of your investment income are required to withhold taxes to ensure that income tax is collected on the income. This happens, for example, when the payer does not have certain information from you. When backup withholding is required, the bank, broker, or other payer of interest, original issue discount (OID), dividends, cash patronage dividends, or royalties must withhold a percentage (28%, for example) of your income and pay it into the U.S. Treasury as income tax in your name.When is Backup Withholding Required? Backup withholding of income taxes will be required in the following cases: • When you did not give your social security number or employer identification nu
Federal law indicates that all shareowners must comply with IRS regulations requiring the submission of a taxpayer identification number or a Form W9 certifying that you are not subject to Backup Withholding. Unless the transfer agent has the required information, they must withhold 31% of dividend payments and sale proceeds at the time of payment.
Banks and other businesses that pay you interest, dividends, rent, or for services you render as an independent contractor may be required to withhold income taxes from the checks they give you. The backup withholding rate is 28%. You will be subject to backup withholding if: • You fail to provide the business paying you with your correct taxpayer identification number when they request it. • The IRS notifies the payer to start backup withholding because you failed to report all of your interest and dividend income on your tax return.
When a person, such as an employer, makes payments to another person, they must withhold and then pay a specified percentage of this payment to the Internal Revenue Service (IRS). This is called backup withholding. These payments have conditions set by the IRS, and there are many variables regarding what type of payments backup withholding can apply to. Backup withholding payments can apply to most payments that are reported on an IRS Form 1099. These can include interest payments and payments by brokers, as well as royalty payments. Other payments may include dividends, patronage dividends if at least half the payment is in money, rents, and profits. Commissions, fees, or payments for work undertaken as an independent contractor may also be liable to backup withholding. There are certain cases for which backup withholding payments can be excluded. These include real estate transactions, abandonments, foreclosures of properties, and cancelled debts. Other exceptions are care benefits,
Under the provisions of Internal Revenue Code, Section 3406(b), persons (payers) making certain payments to payees must withhold and pay to the IRS a specified percentage (see BWH Rate Table) of those payments under certain conditions. Which payments may be subject to backup withholding? Backup withholding can apply to most kinds of payments that are reported on Form 1099. These include: • Interest payments (Form 1099-INT), • Dividends (Form 1099-DIV), • Patronage dividends, but only if at least half the payment is in money (Form 1099-PATR), • Rents, profits, or other gains (Form 1099-MISC), • Commissions, fees, or other payments for work you do as an independent contractor (Form 1099-MISC), • Payments by brokers/barter exchanges (Form 1099-B), • Payments by fishing boat operators, but only the part that is in money and that represents a share of the proceeds of the catch (Form 1099-MISC), and • Royalty payments (Form 1099-MISC). • Gambling winnings (Form W-2G) may also be subject to b
