Banks and other businesses that pay you certain kinds of income must file Form 1099, an information return, with the IRS. Generally, these payments are not subject to withholding; however they may be subject to backup withholding. Payments that may be subject to "backup withholding" include interest, dividends, rents, and payments for work you do as an independent contractor. Under the backup withholding rules, the business or bank must withhold on a payment if:

• You have not given the payer your taxpayer identification number in the required manner,
• The IRS has notified the payer that you provided them with an incorrect identification number,
• The IRS has notified the payer to start withholding on interest and dividends because you had not reported all of your interest or dividend income in prior years; or
• You have not certified, when required, that you were not subject to backup withholding on interest and dividends.

In 2001, the backup withholding rate was 31% for payments made prior to August 7, 2001, and 30.5% for payments made after August 6, 2001.

Payers who withhold income tax under the backup withholding rules must show the tax withheld on a Form 1099. The payer must send you this form by January 31, 2002. If you have not received it by then, contact the bank or business that made payments to you. You should include the amount of tax withheld as a payment on your Form 1040, 1040A or 1040EZ. More detailed information on the backup withholding rules and procedures for payers can be found in Publications 1679 and 1281.

For more information, refer to Publication 505 (PDF), Tax Withholding and Estimated Tax.

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