Definition
Federal income tax a payer must withhold at 24% from some payments, for example when you do not give a correct taxpayer identification number.
What it means
Backup withholding is income tax that a business, bank or platform must take out of certain payments and send to the IRS. The current rate is 24%. It applies to payments reported on information returns, such as Form 1099 payments for freelance work, interest, dividends and payment card or app transactions, when the payee does not give a correct taxpayer identification number or the IRS notifies the payer that the payee underreported interest or dividends. Giving a correct Form W-9 usually prevents it. Amounts withheld are reported on the Form 1099 and count as federal tax paid on your return. Some platforms apply backup withholding to creators who do not submit tax information.
Example
A freelancer who never returns a Form W-9 to a client is paid $1,000, but the client must withhold $240 and send it to the IRS.
Illustrative numbers only. Your situation will differ.