Backup Withholding Definition

Term Definition
Backup withholding is an investment tax levied by the IRS at a fixed rate of 28% on all sources of income like dividends, interest payments, royalties, rents, and gambling winnings.

Extended Definition
Backup withholding is a form of income tax mainly applicable for investors. The main source of income for investors includes interest payments, capital gains, dividends, etc., earned from the invested assets. To avoid tax arrears, the IRS collects backup withholding taxes when the investor collects his income.

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