Backup Withholding
Income tax withholding is money withheld from your income and paid to the government to be applied against your annual income tax bill. That's withholding, right?
So then what is backup withholding? Is it extra money withheld in case the other money withheld wasn't enough? Nope. If a taxpayer didn't provide the correct Tax Identification Number, or did not report dividend, interest, or patronage dividend income to the IRS, they may be subject to backup withholding. Things like rents, royalty payments, profits, commissions, fees, and other payment for work as an independent contractor may also trigger backup withholding.
"May be subject to" implies the taxpayer did it once, the IRS noticed it, and they requested a correction so the taxpayer is on double-secret probation.
FYI, a "patronage dividend" is essentially a refund issued to those who purchase goods or services from a cooperative. Example: Farmer's Co-op's are big in the midwest.
Related or Semi-related Video
Finance: What is a 1099?0 Views
Finance, a la shmoop. What is a 1099? Well it's a tax form for the rest of us the
non fully employed, the non recipients of crappy health care and benefit plans, the [Man looks shocked at his medical bill]
non recipients of fancy corporate business cards those of us who choose to [Business card for Brett Corporate]
go it on our own as consultants, contractors, day laborers and
independents who self employ under the yoke of many masters trying to make our [A contractors diary]
own little way in the world, yeah. Corporations who hire contractors in
whatever form, must deliver to those contractors a form 1099 which outlines [Corporation giving out 1099s to contractors]
and stipulates the details of the job performed for the contractee. That 1099
is a direct conduit to the IRS holding out their arm to shake your hand and [The form 1099s are sent to the IRS]
then turning it 90 degrees to the right. [IRS's hand out expecting something]
Up Next
Time to learn about the IRS. On the bright side, it'll be less painful than an STD, less emotionally manipulating than PMS, and less time-consuming...
Tax brackets set the incremental rates at which the financially more successful are taxed.
A tax haven is a nation that offers special tax incentives for corporations doing business there.
What is tax loss carry-forward? We promise it's a real thing, not just a bunch of words strung together.