Backup withholding is a procedure requiring payers to withhold a certain percentage (currently 24% for payments made after December 31, 2025, per https://www.irs.gov/pub/irs-drop/rp-24-40.pdf) of certain reportable payments, including payments that would be reported on Form 1099. It applies when the payee has failed to provide a correct taxpayer identification number (TIN) or has been notified by the IRS of an incorrect TIN. Backup withholding also applies if the IRS notifies the payer that the payee has underreported interest or dividend income. The payer must withhold the required amount and report it on Form 945, Annual Return of Withheld Federal Income Tax.
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