Military retirement pay is treated in the same manner as regular pay for income tax withholding purposes, even though it is treated as a pension or annuity for other tax purposes.

If you are a household worker, you can ask your employer to withhold income tax from your pay. A household worker is an employee who performs household work in a private home, local college club, or local fraternity or sorority chapter.

Tax is withheld only if you want it withheld and your employer agrees to withhold it. If you do not have enough income tax withheld, you may have to make estimated tax payments, as discussed in chapter 2.

Income tax is generally withheld from your cash wages for work on a farm unless your employer both:

If you receive either noncash wages or cash wages not subject to withholding, you can ask your employer to withhold income tax. If your employer does not agree to withhold tax, or if not enough is withheld, you may have to make estimated tax payments, as discussed in chapter 2.

When you start a new job, you must fill out a Form W–4 and give it to your employer. Your employer should have copies of the form. If you need to change the information, you must fill out a new form.

If you work only part of the year (for example, you start working after the beginning of the year), too much tax may be withheld. You may be able to avoid overwithholding if your employer agrees to use the part-year method, explained later.

Events during the year may change your marital status or the exemptions, adjustments, deductions, or credits you expect to claim on your return. When this happens, you may need to give your employer a new Form W–4 to change your withholding status or number of allowances.

If the event changes your withholding status or the number of allowances you are claiming, you must give your employer a new Form W–4 within 10 days after either of the following.

Events that will decrease the number of withholding allowances you can claim include the following.

Generally, you can submit a new Form W–4 whenever you wish to change the number of your withholding allowances for any other reason.

If you change the number of your withholding allowances, you can request that your employer withhold using the cumulative wage method, explained later.

If events in 2003 will decrease the number of your withholding allowances for 2004, you must give your employer a new Form W–4 by December 1, 2003. If an event occurs in December 2003, submit a new Form W–4 within 10 days. Events that will decrease the number of your allowances include the following.

If you work only part of the year and your employer agrees to use the part-year withholding method, less tax will be withheld from each wage payment than would be withheld if you worked all year. To be eligible for the part-year method, you must meet both the following requirements.

You must ask in writing that your employer use this method. The request must state all three of the following.

If you change the number of your withholding allowances during the year, too much or too little tax may have been withheld for the period before you made the change. You may be able to compensate for this if your employer agrees to use the cumulative wage withholding method for the rest of the year. You must ask in writing that your employer use this method.

To be eligible, you must have been paid for the same kind of payroll period (weekly, biweekly, etc.) since the beginning of the year.

After you have given your employer a Form W–4, you can check to see whether the amount of tax withheld from your pay is too little or too much. See Getting the Right Amount of Tax Withheld, later. If too much or too little tax is being withheld, you should give your employer a new Form W–4 to change your withholding.

Form W–4 has worksheets to help you figure how many withholding allowances you can claim. The worksheets are for your own records. Do not give them to your employer.

Complete only one set of Form W–4 worksheets, no matter how many jobs you have. If you are married and will file a joint return, complete only one set of worksheets for you and your spouse, even if you both earn wages and must each give a Form W–4 to your employers. Complete separate sets of worksheets only if you and your spouse will file separate returns.

If you are not exempt from withholding (see Exemption From Withholding, later), complete the Personal Allowances Worksheet on page 1 of the form. You should also use the worksheets on page 2 of the form to adjust the number of your withholding allowances for itemized deductions and adjustments to income, and for two-earner or two-job situations. If you want to adjust the number of your withholding allowances for certain tax credits, use the Deductions and Adjustments Worksheet on page 2 of Form W–4, even if you do not have any deductions or adjustments.

Complete all worksheets that apply to your situation. The worksheets will help you figure the maximum number of withholding allowances you are entitled to claim so that the amount of income tax withheld from your wages will match, as closely as possible, the amount of income tax you will owe at the end of the year.

If you have income from two jobs at the same time, complete only one set of Form W–4 worksheets. Then split your allowances between the Forms W–4 for each job. You cannot claim the same allowances with more than one employer at the same time. You can claim all your allowances with one employer and none with the other, or divide them any other way.

If both you and your spouse are employed and expect to file a joint return, figure your withholding allowances using your combined income, adjustments, deductions, exemptions, and credits. Use only one set of worksheets. You can divide your total allowances any way, but you cannot claim an allowance that your spouse also claims.

If you and your spouse expect to file separate returns, figure your allowances separately based on your own individual income, adjustments, deductions, exemptions, and credits.

You do not have to use the Form W-4 worksheets if you use a more accurate method of figuring the number of withholding allowances.

The method you use must be based on withholding schedules, the tax rate schedules, and the 2003 Estimated Tax Worksheet in chapter 2. It must take into account only the items of income, adjustments to income, deductions, and tax credits that are taken into account on Form W–4.

You can use the number of withholding allowances determined under an alternative method rather than the number determined using the Form W–4 worksheets. You must still give your employer a Form W–4 claiming your withholding allowances.

If you are neither a citizen nor a resident of the United States, you usually can claim only one withholding allowance. This rule does not apply if you are a resident of Canada or Mexico, or if you are a U.S. national. It also does not apply if your spouse is a U.S. citizen or resident and you have chosen to be treated as a resident of the United States. Special rules apply to residents of Korea, Japan, and India. For more information, see Withholding From Compensation in chapter 8 of Publication 519.

You can claim one withholding allowance for each exemption you expect to claim on your tax return.

You can claim an allowance for your exemption on line A unless another person can claim an exemption for you on his or her tax return. If another person is entitled to claim an exemption for you, you cannot claim an allowance for your exemption even if the other person will not claim your exemption or the exemption will be reduced or eliminated under the phaseout rule.

You can claim an allowance for your spouse's exemption on line C unless your spouse is claiming his or her own exemption or another person can claim an exemption for your spouse. Do not claim this allowance if you and your spouse expect to file separate returns.

You can claim one allowance on line D for each exemption you will claim for a dependent on your tax return.

For 2003, your deduction for personal exemptions is phased out if your adjusted gross income (AGI) falls within the following brackets.

If you expect your AGI to be more than the highest amount in the above bracket for your filing status, enter “0” on lines A, C, and D. If your AGI will fall within the bracket, use the following worksheet to figure the total allowances for those lines.

You can claim an additional withholding allowance if any of the following apply.

If you qualify for this allowance, enter “1” on line B of the worksheet.

You can file as head of household if you are unmarried and pay more than half the cost of keeping up a home for yourself and your dependent or other qualifying individual. For more information, see Head of Household under Filing Status in Publication 501.

If you expect to file as head of household on your 2003 tax return, enter “1” on line E of the worksheet.

Enter “1” on line F if you expect to claim a credit for at least $1,500 of qualifying child or dependent care expenses on your 2003 return. Generally, qualifying expenses are those you pay for the care of your dependent who is under age 13 or for your spouse or dependent who is not able to care for himself or herself so that you can work or look for work. For more information, get Publication 503, Child and Dependent Care Expenses.

Instead of using line F, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained later under Tax credits.

If your total income will be between $15,000 and $42,000 ($20,000 and $65,000 if married), enter “1” on line G for each eligible child. Enter 1 additional if you have three to five eligible children or 2 additional if you have six or more eligible children. If your total income will be between $42,000 and $80,000 ($65,000 and $115,000 if married), enter “1” on line G if you have one or two eligible children, enter “2” if you have three eligible children, enter “3” if you have four eligible children, or enter “4” if you have five or more eligible children.

An eligible child is any child:

For more information about the child tax credit, see the instructions in your Form 1040 or Form 1040A tax package.

Instead of using line G, you can choose to take the credit into account on line 5 of the Deductions and Adjustments Worksheet, as explained later under Tax credits.

Add lines A through G and enter the total on line H. If you do not use either of the worksheets on the back of Form W–4, enter the number from line H on line 5 of Form W–4.

If you expect to claim the standard deduction on your tax return, skip lines 1 and 2, and enter “0” on line 3 of the worksheet.

You can take the following deductions into account when figuring additional withholding allowances for 2003. You normally claim these deductions on Schedule A of Form 1040.

Adjusted gross income for purposes of the worksheet is your estimated total income for 2003 minus any estimated adjustments to income (discussed later) that you include on line 4 of the worksheet.

Enter your estimated total itemized deductions on line 1 of the worksheet.

Reduction of itemized deductions. For 2003, your total itemized deductions may be reduced if your adjusted gross income (AGI) is more than $139,500 ($69,750 if married filing separately). If you expect your AGI to be more than that amount, use the following worksheet to figure the amount to enter on line 1 of the Deductions and Adjustments Worksheet.

You can take the following adjustments to income into account when figuring additional withholding allowances for 2003. These adjustments appear on page 1 of your Form 1040 or 1040A.

Enter your estimated total adjustments to income on line 4 of the worksheet.

Although you can take most tax credits into account when figuring withholding allowances, the Form W–4 worksheets use only the child and dependent care credit (line F of the Personal Allowances Worksheet) and the child tax credit (line G). But you can take these credits and others into account by adding an extra amount on line 5 of the Deductions and Adjustments Worksheet.

If you take the child and dependent care credit into account on line 5, do not use line F of the Personal Allowances Worksheet. If you take the child tax credit into account on line 5, do not use line G.

In addition to the child and dependent care credit and child tax credit, you can take into account the following credits.

To figure the amount to add on line 5 for tax credits, multiply your estimated total credits by the appropriate number from the following tables.

Enter on line 6 your estimated total nonwage income (other than tax-exempt income). Nonwage income includes interest, dividends, net rental income, unemployment compensation, alimony received, gambling winnings, prizes and awards, hobby income, capital gains, royalties, and partnership income.

If line 6 is more than line 5, you may not have enough income tax withheld from your wages. See Getting the Right Amount of Tax Withheld, later.

If line 7 is less than $3,000 enter “0” on line 8. If line 7 is $3,000 or more, divide it by $3,000, drop any fraction, and enter the result on line 8.

On line 1 of the worksheet, enter the number from line H of the Personal Allowances Worksheet (or line 10 of the Deductions and Adjustments Worksheet, if used). Using Table 1 on the Form W–4, find the number listed beside the amount of your estimated wages for the year from your lowest paying job (or if lower, your spouse's job). Enter that number on line 2.

Subtract line 2 from line 1 and enter the result (but not less than zero) on line 3 and on Form W–4, line 5. If line 1 is more than or equal to line 2, do not use the rest of the worksheet (or skip to line 8 if you expect to owe amounts other than income tax).

If line 1 is less than line 2, you should complete lines 4 through 9 of the worksheet to figure the additional withholding needed to avoid underwithholding.

If you expect to owe amounts other than income tax, such as self-employment tax, include them on line 8. The total is the additional withholding needed for the year.

On this worksheet, John and Joyce claim allowances for themselves and their children by entering “1” on line A, “1” on line C, and “2” on line D. Because both John and Joyce will receive wages of more than $1,000, they are not entitled to the additional withholding allowance on line B. The Greens expect to have child and dependent care expenses of $2,400. They enter “1” on line F of the worksheet. Because they are married, their total income will be between $20,000 and $65,000 and they have two eligible children, they enter “2” on line G.

They enter their total personal allowances, 7, on line H.

Because they plan to itemize deductions and claim adjustments to income, the Greens use this worksheet to see whether they are entitled to additional allowances.

The Greens' estimated itemized deductions total $11,300, which they enter on line 1 of the worksheet. Because they will file a joint return, they enter $7,950 on line 2. They subtract $7,950 from $11,300 and enter the result, $3,350, on line 3.

The Greens expect to have an adjustment to income of $3,000 for their deductible IRA contributions. They do not expect to have any other adjustments to income. They enter $3,000 on line 4.

The Greens add line 3 and line 4 and enter the total, $6,350, on line 5.

Joyce and John expect to receive $600 in interest and dividend income during the year. They enter $600 on line 6 and subtract line 6 from line 5. They enter the result, $5,750, on line 7. They divide line 7 by $3,000, and drop the fraction to determine one additional allowance. They enter “1” on line 8.

The Greens enter “7” (the number from line H of the Personal Allowances Worksheet) on line 9 and add it to line 8. They enter “8” on line 10.

The Greens use this worksheet because they both work and together earn over $35,000. They enter “8” (the number from line 10 of the Deductions and Adjustments Worksheet) on line 1.

Next, they use Table 1 on the Form W–4 to find the number to enter on line 2 of the worksheet. Because they will file a joint return and their expected wages from their lowest paying job are $13,300, they enter “2” on line 2. They subtract line 2 from line 1 and enter “6” on line 3 of the worksheet and on Form W–4, line 5.

John and Joyce Green can take a total of 6 withholding allowances between them. They decide that John will take all 6 allowances on his Form W–4. Joyce, therefore, cannot claim any allowances on hers. She will enter “0” on line 5 of the Form W–4 she gives to her employer.

When you start a new job, your employer should give you a Form W–4 to fill out. Your employer will use the information you give on the form to figure your withholding beginning with your first payday.

If you later fill out a new Form W–4, your employer can put it into effect as soon as possible. The deadline for putting it into effect is the start of the first payroll period ending 30 or more days after you turn it in.

If you do not give your employer a completed Form W–4, your employer must withhold at the highest rate — as if you were single and claimed no allowances.

If you find you are having too much tax withheld because you did not claim all the withholding allowances you are entitled to, you should give your employer a new Form W–4. Your employer cannot repay any of the tax previously withheld.

However, if your employer has withheld more than the correct amount of tax for the Form W–4 you have in effect, you do not have to fill out a new Form W–4 to have your withholding lowered to the correct amount. Your employer can repay the amount that was incorrectly withheld. If you are not repaid, your Form W–2 will reflect the full amount actually withheld.

Your employer will usually keep your Form W–4 and use it to figure your withholding. Under normal circumstances, it will not be sent to the IRS. However, your employer must send a copy of your Form W–4 to the IRS for verification in both of the following situations.

The IRS may ask you for information showing how you figured either the number of allowances you claimed or your eligibility for exemption from withholding. If you choose, you can give this information to your employer to send to the IRS along with your Form W–4.

If the IRS determines that you cannot take all the allowances claimed on your Form W–4, or that you are not exempt as claimed, it will inform both you and your employer and will specify the maximum number of allowances you can claim. The IRS also may ask you to fill out a new Form W–4. However, your employer cannot figure your withholding on the basis of more allowances than the maximum number determined by the IRS.

If you believe you are exempt or can claim more withholding allowances than determined by the IRS, you can complete a new Form W–4, stating on the form, or in a written statement, any circumstances that have changed or any other reasons for your claim. You can send it directly to the IRS or give it to your employer to send to the IRS. Your employer must continue to figure your withholding on the basis of the number of allowances previously determined by the IRS until the IRS advises your employer to withhold on the basis of the new Form W–4.

There is a penalty for supplying false information on Form W–4. See Penalties, later.

Generally, each employer for whom you work during the tax year must withhold social security tax up to the annual limit.

If you are a student, you are not automatically exempt. If you work only part time or during the summer, you may qualify for exemption from withholding.

You may have to file a tax return, even if you are exempt from withholding. See Publication 501, Exemptions, Standard Deduction, and Filing Information, to see whether you must file a return.

Age 65 or older or blind. If you are 65 or older or blind, use one of the following worksheets to help you decide whether you can claim exemption from withholding. Do not use either worksheet if you will itemize deductions or claim exemptions for dependents or claim tax credits on your 2003 return — instead, see Itemizing deductions or claiming exemptions or credits, following the worksheets.

If you had no tax liability for 2002, and you will either:

use the 2003 Estimated Tax Worksheet in Form 1040–ES (also see chapter 2), to figure your 2003 expected tax liability. You can claim exemption from withholding only if your total expected tax liability (line 13c of the worksheet) is zero.

To claim exemption, you must give your employer a Form W–4. Print “Exempt” on line 7.

Your employer must send the IRS a copy of your Form W–4 if you claim exemption from withholding and your pay is expected to usually be more than $200 a week. If it turns out that you do not qualify for exemption, the IRS will send both you and your employer a written notice.

If you claim exemption, but later your situation changes so that you will have to pay income tax after all, you must file a new Form W–4 within 10 days after the change. If you claim exemption in 2003, but you expect to owe income tax for 2004, you must file a new Form W–4 by December 1, 2003.

You must give your employer a new Form W–4 by February 15 each year to continue your exemption.

Figure A: Exemption From Withholding Algorithm

Reimbursements or other expense allowances paid by your employer under a nonaccountable plan are treated as supplemental wages. A nonaccountable plan is a reimbursement arrangement that does not require you to account for, or prove, your business expenses to your employer or does not require you to return your employer's payments that are more than your proven expenses.

Reimbursements or other expense allowances paid under an accountable plan that are more than your proven expenses are treated as paid under a nonaccountable plan if you do not return the excess payments within a reasonable period of time.

For more information about accountable and nonaccountable plans, see chapter 6 of Publication 463, Travel, Entertainment, Gift, and Car Expenses.

If you receive tips of $20 or more in a month while working for any one employer, you must report to your employer the total amount of tips you receive on the job during the month. The report is due by the 10th day of the following month.

If you have more than one job, make a separate report to each employer. Report only the tips you received while working for that employer, and only if they total $20 or more for the month.

The tips you report to your employer are counted as part of your income for the month you report them. Your employer can figure your withholding in either of two ways.

If your regular pay is not enough for your employer to withhold all the tax (including social security tax, Medicare tax, or railroad retirement tax) due on your pay plus your tips, you can give your employer money to cover the shortage.

If you do not give your employer money to cover the shortage, your employer will first withhold as much social security tax, Medicare tax, or railroad retirement tax as possible, up to the proper amount, and then withhold income tax up to the full amount of your pay. If not enough tax is withheld, you may have to make estimated tax payments. When you file your return, you also may have to pay any social security tax, Medicare tax, or railroad retirement tax your employer could not withhold.

On your tax return, you must report all the tips you receive during the year, even tips you do not report to your employer. Make sure you are having enough tax withheld, or are paying estimated tax, to cover all your tip income.

If you work in a large establishment that serves food or beverages to customers, your employer may have to report an allocated amount of tips on your Form W–2.

Your employer should not withhold income tax, social security tax, Medicare tax, or railroad retirement tax on the allocated amount. Withholding is based only on your pay plus your reported tips. Your employer should refund to you any incorrectly withheld tax.

For more information on the withholding rules for tip income and on tip allocation, get Publication 531, Reporting Tip Income.

Your employer can choose to treat a fringe benefit as paid by the pay period, by the quarter, or on some other basis as long as the benefit is considered paid at least once a year. Your employer can treat the benefit as being paid on one or more dates during the year, even if you get the entire benefit at one time.

Your employer can choose to treat a benefit provided during November or December as paid in the next year. Your employer must notify you if this rule is used.

Your employer cannot choose when to withhold tax on certain benefits. These benefits are transfers of either real property or personal property of a kind normally held for investment (such as stock). Your employer must withhold tax on these benefits at the time of the transfer.

Your employer can either add the value of a fringe benefit to your regular pay and figure income tax withholding on the total or withhold 27% of the benefit's value.

If the benefit's actual value cannot be determined when it is paid or treated as paid, your employer can use a reasonable estimate. Your employer must determine the actual value of the benefit by January 31 of the next year. If the actual value is more than the estimate, your employer must pay the IRS any additional withholding tax required. Your employer has until April 1 of that next year to recover from you the additional tax paid to the IRS for you.

Your employer must report on Form W–2, Wage and Tax Statement, the total of the taxable fringe benefits paid or treated as paid to you during the year and the tax withheld for the benefits. These amounts can be shown either on the Form W–2 for your regular pay or on a separate Form W–2. If your employer provided you with a car, truck, or other motor vehicle and chose to treat all of your use of it as personal, its value must be either separately shown on Form W–2 or reported to you on a separate statement.

If you receive sick pay under a collective bargaining agreement between your union and your employer, the agreement may determine the amount of income tax withholding. See your union representative or your employer for more information.

If you choose to have income tax withheld from sick pay paid by a third party, such as an insurance company, you must fill out Form W–4S. Its instructions contain a worksheet you can use to figure the amount you want withheld. They also explain restrictions that may apply.

Give the completed form to the payer of your sick pay. The payer must withhold according to your directions on the form.

If you do not request withholding on Form W–4S, or if you do not have enough tax withheld, you may have to make estimated tax payments. If you do not pay enough estimated tax or have enough income tax withheld, you may have to pay a penalty. See chapters 2 and 4.

Form W–4S remains in effect until you change or cancel it, or stop receiving payments. You can change your withholding by giving a new Form W–4S or a written notice to the payer of your sick pay.

The part of your pension or annuity that is a return of your investment in your retirement plan — the amount you paid into the plan or its cost to you — is not taxable. Income tax will not be withheld from the part of your pension or annuity that is not taxable. The tax withheld will be figured on, and cannot be more than, the taxable part.

For information about figuring the part of your pension or annuity that is not taxable, see Publication 575, Pension and Annuity Income.

The withholding rules for pensions and annuities differ from those for salaries and wages in the following ways.

If you give your withholding certificate (Form W–4P or a similar form) to the payer by the time your payments start, it will be put into effect by the first payment made more than 30 days after you submit the certificate.

If you give the payer your certificate after your payments start, it will be put into effect with the first payment made on or after January 1, May 1, July 1, or October 1, whichever is at least 30 days after you submit it. However, the payer can elect to put it into effect earlier.

You generally must have tax withheld from pension or annuity benefits delivered outside of the United states. However, if you are a U.S. citizen or resident alien, you can choose not to have tax withheld if you give the payer of the benefits a home address in the United States or in a U.S. possession. The payer would have to withhold tax if you provide a U.S. address for a nominee, trustee, or agent to whom the benefits are to be delivered, but do not provide your own home address in the United States or in a U.S. possession.

The payer of your pension or annuity must send you a notice telling you about your right to choose not to have tax withheld.

Generally, the payer will not send a notice to you if it is reasonable to believe that the entire amount you will be paid is not taxable.

The payer of your pension or annuity will tell you how to revoke your choice not to have income tax withheld from periodic or nonperiodic payments. If you use Form W–4P to revoke the choice, print “Revoked” by the checkbox on line 1 of the form.

If you use Form W–4P to revoke the choice for periodic payments and you do not complete line 2 of the form, the payer will withhold as if you were married and claiming three allowances.

If a payer withholds income tax from your gambling winnings, you should receive a Form W–2G, Certain Gambling Winnings, showing the amount you won and the amount withheld.

Report the tax withheld on line 62 of Form 1040.

If the payer asks, you must give the payer all the following information.

You may have to give the payer a statement of the amount of your winnings, if any, from identical wagers. If this statement is required, the payer will ask you for it. You provide this statement by signing Form W–2G or, if required, Form 5754.

Identical wagers include two bets placed in a pari-mutuel pool on one horse to win a particular race. However, the bets are not identical if one bet is “to win” and one bet is “to place.” In addition, they are not identical if the bets were placed in different pari-mutuel pools. For example, a bet in a pool conducted by the racetrack and a bet in a separate pool conducted by an offtrack betting establishment in which the bets are not pooled with those placed at the track are not identical wagers.

If you have any kind of gambling winnings and do not give the payer your social security number, the payer may have to withhold income tax at the rate of 30%. This rule applies to keno winnings of more than $1,500, bingo and slot machine winnings of more than $1,200, and certain other gambling winnings of more than $600.

If income tax is withheld from your unemployment compensation, you will receive a Form 1099–G, Certain Government Payments. Box 1 will show the amount of unemployment compensation you got for the year. Box 4 will show the amount of tax withheld.

For more information about the tax treatment of social security and railroad retirement benefits, get Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Get Publication 225, Farmer's Tax Guide, for information about the tax treatment of commodity credit loans or crop disaster payments.

Backup withholding can apply to most kinds of payments that are reported on Form 1099. These include:

Backup withholding may also apply to gambling winnings. See Backup withholding on gambling winnings under Gambling Winnings, earlier.

Backup withholding does not apply to payments reported on Form 1099–MISC (other than payments by fishing boat operators and royalty payments) unless at least one of the following three situations applies.

Form 1099 and backup withholding are generally not required for a payment of less than $10.

When you open a new account, make an investment, or begin to receive payments reported on Form 1099, the bank or other business will give you Form W–9, Request for Taxpayer Identification Number and Certification, or a similar form. You must show your TIN on the form and, if your account or investment will earn interest or dividends, you also must certify (under penalties of perjury) that your TIN is correct and that you are not subject to backup withholding.

For 2003, the payer must withhold at a flat 30% rate in the following situations.

Your TIN is one of the following three numbers.

An ITIN is for tax use only. It does not entitle you to social security benefits or change your employment or immigration status under U.S. law. For more information on ITINs, get Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number.

If you have been notified by a payer that the TIN you gave is incorrect, you can usually prevent backup withholding from starting or stop backup withholding once it has begun by giving the payer your correct name and TIN. You must certify that the TIN you give is correct.

However, the payer will provide additional instructions if the TIN you gave needs to be validated by the Social Security Administration or by the IRS. This may happen if both the following conditions exist.

If you have been notified that you underreported interest or dividends, you must request a determination from the IRS to prevent backup withholding from starting or to stop backup withholding once it has begun. You must show that at least one of the following situations applies.

If the IRS determines that backup withholding should stop, it will provide you with certification and will notify the payers who were sent notices earlier.

There are civil and criminal penalties for giving false information to avoid backup withholding. The civil penalty is $500. The criminal penalty, upon conviction, is a fine of up to $1,000 or imprisonment of up to one year, or both.