backup withholding

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Backup Withholding

Withholding of a certain amount of investment income (e.g. interest, dividends) by banks and other businesses under conditions such as missing Taxpayer Identification Number (TIN) or under directions from the IRS. Also see: TEFRA, W-8, W-9.

Back-Up Withholding

The garnishment of both regular income and investments for tax purposes. In most developed countries, a certain percentage of wages and salaries are withheld from the employee and paid directly to the tax authority. The same applies with many investment profits, including, but not limited to, dividends, commissions, and fees. It does not generally apply to real estate transactions. Governments instituted this regulation to avoid the possibility that a taxpayer may spend all his/her money before it is due to the tax authority, leaving it with the difficult process of collecting. In the United States, back-up withholding originated before the Civil War and was reinstituted in the 1940s.

backup withholding

Compulsory withholding from payments to an investor in order to take care of a potential tax liability. Payments of interest, dividends, and proceeds from a sale of securities are subject to backup withholding when certain requirements are not met, including if the investor fails to provide a correct taxpayer identification number (TIN) or if dividends and interest have been underreported.
References in periodicals archive ?
See additional comments below under Administrable Payee Exceptions and Backup Withholding sections for other issues posed by the affiliated group entities filing under the TIN of the parent.
Under section 3406, payments of interest, dividends, compensation paid to independent contractors, and other reportable payments made in the course of a trade or business are subject to backup withholding under certain circumstances.
Deposits and Guarantees required: Each payment will be subject to backup withholding at a rate of 5.
6050W are subject to backup withholding (effective for amounts paid after December 31, 2011).
During such firm's review of the company's financial information, it was discovered that the company had not paid backup withholding on gambling winnings during 1993.
The IRS notices instruct payers to impose backup withholding (20% of payments such as interest and dividends) on the accounts of customers with incorrect TINs when those customers fail to provide correct TINs to payers within 30 days.
Deposits and Guarantees required: Each payment will be subject to backup withholding at a rate of 5% in accordance with Articles 101, 102 and 103 of the Code of public contracts.
The guidance provided in the IRM includes instructing withholding examiners to consider Form 1099 reporting and backup withholding as part of an integrated audit.
To avoid a backup withholding of 20 percent on income received, be sure your Social Security number is properly reported to all your banks and financial institutions.
Deposits and Guarantees required: The contractor is exempt from backup withholding.
For backup withholding implementation, however, the relief is more helpful, in that it precludes backup withholding on payments of exempt interest and exempt-interest payments through the first quarter of 2007.
Certain stockholders may be subject to backup withholding unless they are "exempt recipients" or comply with certain reporting and/or certification procedures.