What is Form W9 and backup withholding?

Your investment income is generally not subject to regular tax withholding, however, it may be subject to backup withholding to ensure that income tax is collected on this taxable income. Backup  withholding can be taken by the IRS from your investment income if:
you fail to furnish your taxpayer identification number on Form W9, Request for Taxpayer Identification Number and Certification, to payers of interest or dividend income;
you give them the wrong number; or
you ignore notices from the IRS claiming that you have under reported interest or dividend income on your tax return.

Under backup withholding, when you open up a new account you must certify under penalties of perjury that your social security number is correct and that you are not subject to backup withholding on Form W9, Request for Taxpayer Identification Number and Certification.

The backup withholding tax rate is 28%.

Additionally, if you don't give the payer your taxpayer identification number the following can be subject to backup withholding:

money you earn as an independent contractor if your fees are $600 or more;
payments from brokers;
royalty payments; and
gambling winnings.

Form W9, Request for Taxpayer Identification Number and Certification, is used to certify under penalties of perjury that your social security number is correct and that you are not subject to backup withholding. If you fail to make this certification on a Form W-9, or similar statement, backup withholding may begin immediately on your new account, and 28% of the interest or payments paid on your account will be withheld for income tax.

There are both civil and criminal penalties if you provide false information to avoid backup withholding.

 Related tax information about Form W9 and backup withholding
General Tax Questions
IRS publications about Form W9 and backup withholding:
For additional information about Form W9 and backup withholding refer to IRS Publication 505, Tax Withholding and Estimated Tax and Tax Topic 307. Also see IRS Publication 17, Your Federal Income Tax.
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