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Rev. date: 2/13/2017

Backup Withholding

Tax Topic 307
When it applies, backup withholding requires a payer to withhold tax from income not otherwise subject to withholding. You may be subject to backup withholding if you fail to provide a correct taxpayer identification number (TIN) when required or if you fail to report interest, dividend, or patronage dividend income.
Banks or other businesses that pay you certain types of income must file an information return with the IRS on Form 1099 showing payments that you received during the year. A Form 1099 includes your name and TIN such as a social security number (SSN), employer identification number (EIN), or individual taxpayer identification number (ITIN). The Form 1099 will also report any amounts withheld under the backup withholding rules.
Payments subject to backup withholding: Backup withholding can apply to most kinds of payments reported on Form 1099, including:
Backup withholding also may apply to gambling winnings (Form W-2G) on winnings that aren't subject to regular gambling withholding.
Withholding rules: When you open a new account, make an investment, or begin to receive payments reportable on Form 1099, you must furnish your TIN in writing to the bank or other business and certify under penalties of perjury that it's correct. In some cases, the bank or business will give you Form W-9, Request for Taxpayer Identification Number and Certification, or a similar form. If your account or investment will earn interest or dividends, you must also certify that you're not subject to backup withholding due to previous underreporting of interest and dividends.
You may be subject to backup withholding and the payer must withhold at a flat 28% rate when:
There are two separate backup withholding (BWH) programs that require payers to withhold tax at the backup withholding rate from payee's income:
  1. Under the BWH-B program, payers must withhold tax because of missing or incorrect TIN information.
  2. Under the BWH-C program, payers are required to withhold tax because of unreported income or unfiled tax returns.
How to prevent or stop backup withholding: To stop backup withholding, you'll need to correct the reason you became subject to backup withholding in the first place. This can include providing the correct TIN to the payer, resolving the underreported income and paying the amount owed, or filing the missing return(s), as appropriate.
If you receive a notice from a payer notifying you that the TIN you gave is incorrect, you can usually prevent backup withholding from starting or stop it once it has begun by giving the payer your correct name and TIN and certifying that the TIN you give is correct. If you receive a second notice from that payer, you'll need to provide them with a copy of your social security card that shows your correct name and SSN.
Credit for backup withholding: If you had income tax withheld under the backup withholding rule, report the federal income tax withholding (shown on Form 1099) on your return for the year you received the income.
If you operate as a partnership or subchapter S corporation, any monies withheld because of an incorrect name or TIN can only be claimed by the partners and shareholders. Partners and shareholders should report their respective shares of the withheld amounts on their individual income tax returns. The monies aren't refundable to the partnership or subchapter S corporation.

Additional Information

You can find more detailed information on backup withholding in Publication 1281, Backup Withholding for Missing and Incorrect Name/Tin(s), including the procedures for payers, and in Publication 505, Tax Withholding and Estimated Tax.