Business, Legal & Accounting Glossary
Backup withholding is a mechanism that enables the IRS to collect taxes on income and earnings from recipients who lack a taxpayer identification number (TIN). For example, income earned by an employee without a Social Security number would be subject to backup withholding. Form 1099 non-wage payments from brokers or banks to entities without a TIN would be subject to backup withholding. In the latter instance, the brokers or banks would be obligated to report the matter to the IRS, set aside a portion of the payment, and remit it as the backup withholding amount to the IRS. For example, in 2010, income reported on 1099 forms (e.g. interest, dividends, rents, royalties, commissions, non-employee compensation, and barter exchange transactions) were subject to a 28% backup withholding rate. Foreclosures and abandonments, real estate transactions, cancelled debts, retirement account distributions, and long-term care benefits are among the payments excluded from backup withholding. Government agencies, corporations, tax-exempt organizations are exempt from backup withholding. Individuals can remove themselves from the backup withholding list if they file a W-9 form with the IRS.
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This glossary post was last updated: 4th February, 2020 | 0 Views.