According to the Internal Revenue Service, in the US, backup withholding is a specified percentage withheld by the payers to be paid to the IRS on most kinds of transactions reported on variants of Form 1099. Backup withholding may be required for several reasons, including but not limited to:

  • an improper TIN/ITIN/ATIN on the W-9
  • an IRS backup withholding order
  • certain types of payment are always subject

Banks or other businesses that pay certain kinds of income must file an information return (Form 1099) with the IRS. The Form 1099 shows how much an individual was paid during the year. It also includes the individual’s name and Social Security Number (SSN) or other taxpayer identification number (TIN).

Payments reported on a 1099 are generally not subject to withholding. However, “backup” withholding is required in certain situations.