In tax administration in the United States, backup withholding is the sending of a portion of a payment (such as a wage) to a tax authority instead of to the payee. This applies to the US IRS and the tax authorities of some states. For the IRS, it applies to some payments reported on Form 1099 which must be submitted to the IRS by financial institutions and businesses making certain income payments. Factors that necessitate backup withholding include:
When an individual or entity opens a new account, makes an investment, or begins receiving payments that are to be reported on Form 1099, they must provide their taxpayer identification number (TIN) to the respective institution. In turn, the institution issues a Form W-9, Request for Taxpayer Identification Number and Certification, or a similar form. The individual or entity must enter their TIN on the form. If the account or investment accrues interest or dividends, they must also certify that they are not subject to backup withholding due to prior under-reporting of interest and dividends.
The payer is required to withhold 24% of the payment in the following scenarios:
Failure to provide the TIN in the required manner.
Notification from the IRS that the provided TIN is incorrect.[1]
IRS instruction to withhold interest or dividends due to under-reported amounts. The IRS will only issue this directive after sending four notices over at least a 120-day period.
Failure to certify exemption from backup withholding for under-reported interest and dividends.
Prevention and resolution
If a payer issues a "B" notice, indicating an incorrect TIN, individuals can usually prevent or stop backup withholding by providing the correct name and TIN to the payer. Certification of the accuracy of the TIN is crucial. In the event of a second "B" notice, verification of the TIN from the Social Security Administration or the IRS is required.[2]
If notified of under-reported interest or dividends, individuals must request and receive a determination from the IRS to prevent or stop backup withholding.
Tax return treatment
If income tax has been withheld under backup withholding, individuals should claim credit for it on their tax return for the year in which the income was received.
For more comprehensive information on backup withholding, refer to Publication 1281, "Backup Withholding for Missing and Incorrect Name/TIN(s)", which outlines procedures for payers, and Publication 505, "Tax Withholding and Estimated Tax".
State backup withholdingedit
Some states may also require backup withholding if it is already required by the IRS:
^"Internal Revenue Service | An official website of the United States government". www.irs.gov. Retrieved 2023-12-12.
^"Internal Revenue Service | An official website of the United States government". www.irs.gov. Retrieved 2023-12-12.
^"Instructions". Vermont Department of Taxes. What payments are subject to Vermont Income Tax Withholding?
^(PDF). Maine Revenue Services. July 28, 2017. Archived from the original (PDF) on 2017-10-25.
External linksedit
IRS: Backup Withholding
Individual Taxpayer Identification Number
January 01, 1970
backup, withholding, administration, united, states, backup, withholding, sending, portion, payment, such, wage, authority, instead, payee, this, applies, authorities, some, states, applies, some, payments, reported, form, 1099, which, must, submitted, financi. In tax administration in the United States backup withholding is the sending of a portion of a payment such as a wage to a tax authority instead of to the payee This applies to the US IRS and the tax authorities of some states For the IRS it applies to some payments reported on Form 1099 which must be submitted to the IRS by financial institutions and businesses making certain income payments Factors that necessitate backup withholding include Incorrect taxpayer identification number TIN ITIN ATIN on Form W 9 An IRS backup withholding order Certain types of payments Contents 1 Withholding rules 2 State backup withholding 3 References 4 External linksWithholding rules editWhen an individual or entity opens a new account makes an investment or begins receiving payments that are to be reported on Form 1099 they must provide their taxpayer identification number TIN to the respective institution In turn the institution issues a Form W 9 Request for Taxpayer Identification Number and Certification or a similar form The individual or entity must enter their TIN on the form If the account or investment accrues interest or dividends they must also certify that they are not subject to backup withholding due to prior under reporting of interest and dividends The payer is required to withhold 24 of the payment in the following scenarios Failure to provide the TIN in the required manner Notification from the IRS that the provided TIN is incorrect 1 IRS instruction to withhold interest or dividends due to under reported amounts The IRS will only issue this directive after sending four notices over at least a 120 day period Failure to certify exemption from backup withholding for under reported interest and dividends Prevention and resolutionIf a payer issues a B notice indicating an incorrect TIN individuals can usually prevent or stop backup withholding by providing the correct name and TIN to the payer Certification of the accuracy of the TIN is crucial In the event of a second B notice verification of the TIN from the Social Security Administration or the IRS is required 2 If notified of under reported interest or dividends individuals must request and receive a determination from the IRS to prevent or stop backup withholding Tax return treatmentIf income tax has been withheld under backup withholding individuals should claim credit for it on their tax return for the year in which the income was received For more comprehensive information on backup withholding refer to Publication 1281 Backup Withholding for Missing and Incorrect Name TIN s which outlines procedures for payers and Publication 505 Tax Withholding and Estimated Tax State backup withholding editSome states may also require backup withholding if it is already required by the IRS California 7 citation needed Vermont 7 56 3 Maine 5 4 References edit Internal Revenue Service An official website of the United States government www irs gov Retrieved 2023 12 12 Internal Revenue Service An official website of the United States government www irs gov Retrieved 2023 12 12 Instructions Vermont Department of Taxes What payments are subject to Vermont Income Tax Withholding Updated Withholding Tables for Individual Income Tax PDF Maine Revenue Services July 28 2017 Archived from the original PDF on 2017 10 25 External links editIRS Backup Withholding Individual Taxpayer Identification Number Retrieved from https en wikipedia org w index php title Backup withholding amp oldid 1193647662, wikipedia, wiki, book, books, library,
