Backup withholding

Two triggers apply to any reportable payment: you gave the payer no taxpayer ID, or the IRS told the payer your ID is wrong. Two more concern only interest and dividends. They are an IRS finding that you underreported them, and a missing certification that you are not subject to backup withholding.

It can reach most payments reported on a 1099, including pay for services, royalties and 1099-K payouts. Google, for one, applies it to a US creator’s YouTube earnings from every country when AdSense has no tax info. When it is taken from pay for services or other income, a 1099-NEC or 1099-MISC must be filed, however small the payment.

On payment app or marketplace payouts, it generally starts only once the year’s payouts pass $20,000 and 200 transactions, the 1099-K’s two tests. It can start sooner if last year’s payouts from that app were reportable. On pay for services, it generally starts once a payer’s total to you for the year reaches $2,000.

To stop it, fix the cause, which usually means giving the payer your correct taxpayer ID on Form W-9. The amount withheld is a prepayment of your income tax. Report it on your return as federal tax withheld, for the year you received the income.