In tax administration in the United States, backup withholding is the sending of a portion of a payment (such as a wage) to a tax authority instead of to the payee. This applies to the US IRS and the tax authorities of some states. For the IRS, it applies to some payments reported on

Form 1099 Form 1099 is one of several IRS tax forms (see the variants section) used in the United States to prepare and file an ''information return'' to report various types of income other than wages, salaries, and tips (for which Form W-2 is used instead ...

which must be submitted to the IRS by financial institutions and businesses making certain income payments. Factors that necessitate backup withholding include: # Incorrect

taxpayer identification number A Taxpayer Identification Number (TIN) is an identifying number used for tax purposes in the United States and in other countries under the Common Reporting Standard. In the United States it is also known as a Tax Identification Number (TIN) ...

(TIN)/ITIN/ATIN on Form W-9 # An IRS backup withholding order # Certain types of payments

Withholding rules

When an individual or entity opens a new account, makes an investment, or begins receiving payments that are to be reported on Form 1099, they must provide their taxpayer identification number (TIN) to the respective institution. In turn, the institution issues a Form W-9, Request for Taxpayer Identification Number and Certification, or a similar form. The individual or entity must enter their TIN on the form. If the account or investment accrues interest or dividends, they must also certify that they are not subject to backup withholding due to prior under-reporting of interest and dividends. The payer is required to withhold 24% of the payment in the following scenarios: # Failure to provide the TIN in the required manner. # Notification from th
IRS
that the provided TIN is incorrect. # IRS instruction to withhold interest or dividends due to under-reported amounts. The IRS will only issue this directive after sending four notices over at least a 120-day period. # Failure to certify exemption from backup withholding for under-reported interest and dividends. Prevention and resolution If a payer issues a "B" notice, indicating an incorrect TIN, individuals can usually prevent or stop backup withholding by providing the correct name and TIN to the payer. Certification of the accuracy of the TIN is crucial. In the event of a second "B" notice, verification of the TIN from the Social Security Administration or th
IRS
is required. If notified of under-reported interest or dividends, individuals must request and receive a determination from the IRS to prevent or stop backup withholding. Tax return treatment If income tax has been withheld under backup withholding, individuals should claim credit for it on their tax return for the year in which the income was received. For more comprehensive information on backup withholding, refer to Publication 1281, "Backup Withholding for Missing and Incorrect Nam
TIN
s)", which outlines procedures for payers, and Publication 505, "Tax Withholding and Estimated Tax".

State backup withholding

Some states may also require backup withholding if it is already required by the IRS: *

California California () is a U.S. state, state in the Western United States that lies on the West Coast of the United States, Pacific Coast. It borders Oregon to the north, Nevada and Arizona to the east, and shares Mexico–United States border, an ...

: 7% *

Vermont Vermont () is a U.S. state, state in the New England region of the Northeastern United States. It borders Massachusetts to the south, New Hampshire to the east, New York (state), New York to the west, and the Provinces and territories of Ca ...

: 7.56% *

Maine Maine ( ) is a U.S. state, state in the New England region of the United States, and the northeasternmost state in the Contiguous United States. It borders New Hampshire to the west, the Gulf of Maine to the southeast, and the Provinces and ...

: 5% {{Cite web , url=http://www.state.me.us/REVENUE/forms/with/2017/17_WH_Tab%26instructions20170728-nosur.pdf , work=Maine Revenue Services , date=July 28, 2017 , title = Updated Withholding Tables for Individual Income Tax , archive-url=https://web.archive.org/web/20171025144917/http://www.state.me.us/revenue/forms/with/2017/17_WH_Tab%26instructions20170728-nosur.pdf , archive-date=2017-10-25 , url-status=dead

References

External links

IRS: Backup WithholdingIndividual Taxpayer Identification Number
Internal Revenue Service Withholding taxes