Which Payments are Subject to Backup Withholding?
Backup withholding can apply to most kinds of payments that are reported on Form 1099. These include:
- Interest payments (Form 1099-INT),
- Dividends (Form 1099-DIV),
- Patronage dividends, but only if at least half the payment is in money (Form 1099-PATR),
- Rents, profits, or other gains (Form 1099-MISC),
- Commissions, fees, or other payments for work you do as an independent contractor (Form 1099-MISC),
- Payments by brokers/barter exchanges (Form 1099-B),
- Payments by fishing boat operators, but only the part that is in money and that represents a share of the proceeds of the catch (Form 1099-MISC), and
- Royalty payments (Form 1099-MISC).
- Gambling winnings (Form W-2G) may also be subject to backup withholding.
- Original issue discount reportable on (Form 1099-OID), Original Issue Discount, if the payment is in cash.
To be subject to backup withholding, a payment must be a reportable interest or dividend payment under section 6049(a), 6042(a), or 6044 (if the patronage dividend is paid in money or qualified check), or an “other” reportable payment under section 6041, 6041A(a), 6045, 6050A, or 6050N. If the payment is one of these reportable payments, backup withholding will apply if:
- The payee fails to furnish his or her taxpayer identification number (TIN) to you,
- For interest, dividend, and broker and barter exchange accounts opened or instruments acquired after 1983, the payee fails to certify, under penalties of perjury, that the TIN provided is correct,
- The IRS notifies you to impose backup withholding because the payee furnished an incorrect TIN (CP2100 or CP2100A).
- For interest and dividend accounts or instruments, you are notified that the payee is subject to backup withholding (under section 3406(a)(1)(C), “C” notice), or
- For interest and dividend accounts opened or instruments acquired after 1983, the payee fails to certify to you, under penalties of perjury, that he or she is not subject to backup withholding. Some payees are exempt from backup withholding. For a list of exempt payees and other information, see Form W-9, Request for Taxpayer Identification Number and Certification, and the separate Instructions for the Requester of Form W-9.
