Backup withholding is the 24 percent the IRS requires a payer to withhold when a payee has not provided a valid taxpayer identification number or the IRS has notified the payer of underreporting.
Exchanges and brokers apply it to customers who fail to certify their TIN on Form W-9. The withheld tax is credited on the return.
It is why exchanges insist on a W-9 before enabling withdrawals, and why a mismatched name and TIN can freeze an account. Form W-9.
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