![]() The payer should then forward this backup withholding notice to the individual. It will send a “B” notice to the payer of income first, alerting them that the identifying details don’t match IRS records. The IRS is required to send a warning before applying backup withholding. It’s easy to stop the process, in this case, by merely supplying the corrected information. When a taxpayer submits an incorrect name or tax ID number on a W-9 form, this can trigger backup withholding. The process for backup withholding will depend on the situation: Incorrect information on tax forms For example, unemployment payments, retirement account payments, and real estate transactions are not subject to mandatory withholding. There are also multiple types of payments that backup withholding doesn’t apply to. ![]() Usually, backup withholding will only be applied to the types of income reported on Form 1099. The taxpayer has failed to prove their exemption from backup withholding. To make up the difference, future tax would be withheld. This is usually a Social Security Number but could also be another official ID that’s been used in error.Ī taxpayer has underreported their dividends or interest payments. Here are a few circumstances when it might be applied.Īn incorrect taxpayer identification number (TIN) has been used when filing taxes. Most US taxpayers will be exempt from backup withholding. When applied, this rule requires that applicable financial institutions or businesses withhold a flat percentage of 24% of income. The method applies to those earning gambling, interest, or specific types of self-employment income who haven’t reported it accurately in the past. This federal tax applies to some income types that usually wouldn’t have taxes withheld. Understanding backup withholdingīackup withholding is used by the IRS to withhold certain types of income. Here’s a closer look at the definition of backup withholding and when it’s typically applied. The IRS has several tools at its disposal to ensure that taxes are accurately reported and paid.
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