Backup Withholding

Income tax withholding is money withheld from your income and paid to the government to be applied against your annual income tax bill. That's withholding, right?

So then what is backup withholding? Is it extra money withheld in case the other money withheld wasn't enough? Nope. If a taxpayer didn't provide the correct Tax Identification Number, or did not report dividend, interest, or patronage dividend income to the IRS, they may be subject to backup withholding. Things like rents, royalty payments, profits, commissions, fees, and other payment for work as an independent contractor may also trigger backup withholding.

"May be subject to" implies the taxpayer did it once, the IRS noticed it, and they requested a correction so the taxpayer is on double-secret probation.

FYI, a "patronage dividend" is essentially a refund issued to those who purchase goods or services from a cooperative. Example: Farmer's Co-op's are big in the midwest.