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Backup Withholding

What Is Backup Withholding?

The Internal Revenue Code (IRC) 3046(a) requires payers under certain circumstances to withhold 28% from vendor payments for federal income taxes. Payments that may be subject to backup withholding include payments to independent contractors for services, payments for interest, dividends, rents, royalties, and broker payments.  

When Is Backup Withholding Required?

An individual or vendor does not provide the payer a Taxpayer Identification Number (TIN) when requested. Usually provided on Form W-9 (pdf).

The Internal Revenue Service (IRS) notifies the payer that your name and Social Security Number or Taxpayer Identification Number (TIN) on Form W-9 is incorrect or does not match their records.

The IRS may require backup withholding because you owe federal income taxes, or you have not reported all your income on your tax returns.

How Are Backup Withholdings Reported?

Payers who withhold income tax must remit the amount withheld to the IRS and report the amount withheld from the payee on Form 1099. The payee who receives a Form 1099 should report the amount of tax withheld in the payments section of the appropriate income tax return form.

Additional Information

Last Updated: 5/13/10