Backup withholding is a specified percentage withheld by payers to be paid to the IRS on most kinds of transactions reported on variants of Form 1099. It is a type of tax levied on investment income when the investor withdraws those funds. The backup withholding rate is 24% for tax years 2018-2025, but previously it was 28%
. Backup withholding may be required for several reasons, including an improper TIN/ITIN/ATIN on the W-9, an IRS backup withholding order, or certain types of payment that are always subject to backup withholding
. It applies when a payer is required to withhold tax from payments not otherwise subject to withholding
. Backup withholding can apply to most payments reported on Forms 1099 and W-2G, including rents, royalties, commissions, and non-employee compensation
. To stop backup withholding, the payee will need to correct the reason they became subject to backup withholding, such as providing the correct TIN to the payer
