Backup Withholding is a specified percentage (currently 28%) withheld by the payers to be paid to the Internal Revenue Service on most transactions reported on variants of the IRS Form 1099. Payments reported on a 1099 are generally not subject to withholding. However, “backup” withholding is required in certain situations.
The payer must withhold at a flat 28% rate in the following situations:
- You do not give the payer your TIN in the required manner.
- The IRS notifies the payer that the TIN you gave is incorrect.
- The IRS notifies the payer to start withholding on interest or dividends because you have underreported interest or dividends on your income tax return. The IRS will do this only after it has mailed you four notices over at least a 120-day period.
- You fail to certify that you are not subject to backup withholding for underreporting of interest and dividends.