Backup withholding意思
Backup withholding refers to a method of tax withholding in the United States where a payer is required to withhold a percentage of certain payments made to a payee and remit that amount to the Internal Revenue Service (IRS) if the payee does not provide the payer with a taxpayer identification number (TIN) or if information provided by the payee does not match IRS records.
The purpose of backup withholding is to ensure that taxes are paid on income that would otherwise go unreported or underreported. It is a form of tax collection at the source and is intended to reduce the likelihood of taxpayers underpaying or avoiding their tax obligations.
Backup withholding applies to various types of payments, including:
- Interest payments on certain investments, such as savings accounts, certificates of deposit (CDs), and certain types of bonds.
- Dividends paid by corporations.
- Payments from gambling winnings, such as lottery winnings.
- Payments from certain retirement plans, such as distributions from traditional IRAs.
- Rents and royalties in some cases.
- Brokerage proceeds from the sale of stock or other securities.
The rate of backup withholding is typically 24%, although this rate can vary depending on the type of payment and the circumstances. Payers are generally required to start backup withholding if any of the following conditions apply:
- The payee fails to provide a TIN (usually a Social Security number or an Employer Identification Number).
- The IRS notifies the payer that the payee has underreported income in the past.
- The payee has not reported all income subject to reporting on Form 1099 in the past.
- The payee has not filed income tax returns for the past three years.
It's important for both payers and payees to understand their responsibilities regarding backup withholding to avoid unnecessary tax complications and ensure compliance with IRS regulations. Payees who are subject to backup withholding should ensure that their TIN is provided to the payer and that their tax information is accurate to avoid having a portion of their payments withheld. Payers must comply with the backup withholding rules to avoid penalties for non-compliance.