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A form of tax withholding on income from stock sales, interest, dividends, or other types of payments reported on IRS Form 1099. The current rate of backup withholding is 24%, but it was 28% before 2018. Brokerage firms are required to make backup withholding on stock sales when the client has not completed and filed Form W-9 (for US tax residents) or Form W-8BEN (for nonresidents).
Alert: Backup withholding is different than nonresident alien (NRA) withholding based on IRS Form 1042-S. That applies at the rate of 30% (or applicable treaty rate) for US-sourced interest and dividends but not gross proceeds from capital gains transactions paid by a US corporation (or by certain non-US corporations that have generally derived 25% or more of their gross income from sources within the United States).
For details, including ways in which US citizens and nonresident aliens can recover backup withholding, see the FAQ on this topic.
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