Backup withholding is when a taxpayer must withhold at the current rate of 24%, taken from any future payments, to help the IRS receive the tax due on this income; this can happen for many reasons, including failing to provide a correct taxpayer identification number (TIN) or failing to report or underreport interest and dividend income.
Many types of payments are subject to backup withholding, and you can view the complete list on the IRS’ website, but some include:
- Interest payments
- Dividends
- Rents, profits, or other gains
- Commissions, fees, or other payments for work you do as an independent contractor
- Royalty payments
This information is not a substitute for individualized tax advice. Please discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS8
Footnotes and Sources
- IRS.gov, October 8, 2024
