A bank or other payer of income to be reported to you on Form 1099 may have to withhold tax on that income at a flat rate of 30 percent. This is referred to as "backup withholding".
Backup withholding applies when the bank or other payer doesn't have, or doesn't think it has, your tax identification number. This is your Social Security number, or, if you don't have a Social Security number, your individual tax identification number. If you forget or refuse to give the bank or business your tax identification number, or the IRS tells the payer that you provided an incorrect number, 30 percent of the income to be reported on Form 1099 will be diverted to the IRS.
Backup withholding can also be ordered by the IRS if it concludes you failed to report on your tax return interest or dividends you received for a prior year.
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