Backup Withholding Rate

What Does Backup Withholding Rate Mean?

A backup withholding rate is a tax rate charged to certain individuals, especially those with tax identification number issues. The amount is taken when an investor withdraws from an investment and not during the official tax payment period.

Insuranceopedia Explains Backup Withholding Rate

People who have no problems regarding tax identification (TIN) or who have filled their forms correctly will not be charged a backup withholding rate from the Internal Revenue Service (IRS) since the bureau will not have a hard time tracking them down for tax problems. For those who have TIN issues, however, the IRS will levy this flat 28% tax rate, which may be withheld from investments like stocks, dividends, or rental fees.