Backup withholding is when a taxpayer must withhold at the current rate of 24%, which is taken from any future payments, to ensure that the IRS receives the tax due on this income. This can happen for many reasons, including if you fail to provide a correct taxpayer identification number (TIN) or if you fail 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
- Rents, profits, or other gains
- Commissions, fees, or other payments for work you do as an independent contractor
- Royalty payments
- Gambling winnings
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov6
Footnotes and Sources
- IRS.gov, July 14, 2022