An IRS procedure designed to ensure that a taxpayer who does not have a Social Security number will still have taxes withheld on his/her income. see also withholding.
Income tax withholding required from nonemployee compensation when the payee fails to furnish the payer with a taxpayer identification number or the payer is notified by the IRS that the payee's TIN is incorrect.
Those who make payments to others of interest, dividends, rents, royalties, etc., must, under certain circumstances, withhold income tax from the payment. For example, if you fail to provide your bank with your taxpayer identification number, the bank is required to withhold income tax from the interest it pays you.
The withholding of taxes (at a 31% rate) on disbursements from a client's mutual fund if the client or back office has not supplied the fund company with a correct TIN or if the fund is notified that the client has underreported their income to the IRS. There are four types of backup withholding: 1) applied for ( the client has applied for, but not yet received their TIN), 2) B Notice C Notice Noncertification.
Income tax withholding required from nonemployee compensation when the payee fails to furnish the payer with a TIN or the payer is notified by the Internal Revenue Service that the payee's TIN is incorrect.
Withholding and paying the IRS 31% or 30.5% of certain payments made to you, including payments from distributions and redemption proceeds. Certain payments you received will be subject to backup withholding if: The backup withholding rate is 31%, prior to August 7, 2001. As of August 7, 2001, the withholding rate is 30.5%. Backup withholding is claimed when filing your tax return and will either increase the amount of your tax refund or decrease the amount of additional tax you may owe.
Backup withholding taxes deducted from check.
A tax-collection method whereby a percentage of your income (31%) is deducted by the payer and sent to the Internal Revenue Service. You are subject to backup withholding if: You do not provide your taxpayer identification number in the required manner. You provide an incorrect taxpayer identification number. You did not certified, when required, that you were not subject to backup withholding. The IRS notifies the payer to start withholding because you did not report all of your interest or dividend income. As part of the Registration process, you indicated whether or not you were subject to backup withholdings.
Payors of interest, dividends and other reportable payments must withhold income tax equal at a rate equal to the fourth lowest rate applicable to single filers if they fail to supply a federal id # or if they fail to certify that they are not subject to it.
Federal income tax withheld by a fund's withholding agent from reportable payments if an investor fails to furnish his certified taxpayer identification number (TIN), or is subject to backup withholding for other reasons. Payments that may be subject to backup withholding include taxable dividends, capital gain distributions and gross proceeds from the sale of fund shares.
Unless a Social Security or Tax Identification number is filed with a financial institution, the Internal Revenue Service requires 20% of all interest or dividend income be withheld. Backup withholding may be avoided by filing a W-9 form when opening an account with a financial institution.
A Backup withholding is a mandatory withholding that may be imposed when rules regarding taxpayer identification numbers, (usually a Social Security number) are not met by the individual. Backup withholding may be claimed as a credit by taxpayers on their federal income tax return.
This is a United States Tax related article. Please refer to rules set forth by the Internal Revenue Service for correct and up-to-date information.
