What is backup withholding?

BY Tiffany Wong

Banks and other businesses that pay certain kinds of income to you must file an information return Form 1099 with the IRS. The Form 1099 shows payment(s) made to you during the year, and includes your name and tax identification number. These payments generally are not subject to backup withholding. Backup withholding, however, is required in certain situations.

What type of payments are subject to backup withholding?

• Interest payments (Form 1099-INT)
• Dividends (Form 1099-DIV)
• Payment Card and Third Party Network Transactions (Form 1099-K)
• 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)
• Royalty payments (Form 1099-MISC)
• Gambling winnings (Form W-2G) may also be subject to backup withholding
• Original issue discount reportable on (Form 1099-OID), Original Issue Discount, if the payment is in cash
• Certain Government Payments, Form 1099-G

When is backup withholding required?

• You failed to provide a correct taxpayer identification number (TIN) to the payer for reporting on the required information return. A TIN can be either a social security number or individual taxpayer identification number
• You failed to report or underreported interest and dividend income on your federal income tax return
• You failed to certify that you are not subject to backup withholding for underreporting of interest and dividend income

How do I prevent or stop backup withholding?

You will need to correct the reason you became subject to backup withholding. This can include providing the correct TIN to the payer, resolving the underreported income and paying the amount owed or filing the missing return(s).

What is the current backup withholding rate?

The current backup withholding rate is a flat 24 percent.

How do I report credit for backup withholding?

You can report the backup withholding (shown on Form 1099 or W-2G) on your return for the year you received the income.
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Tiffany Wong


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