When should someone check "Exempt from backup withholding" on a tax form?

Question

I don't know what it means, so I assume I don't have to check it, but don't want to make a mistake either. There are no instructions about it online.

Let's reword the question:

Why does someone have to check "Exempt from backup withholding" on a tax form for employers?

Yes, a W9. Thanks!

Answer 1

Persons (payers) making certain payments to payees must withhold and pay to the IRS a specified percentage of those payments under certain conditions. It is called backup holding.

The backup withholding rate is 28% for reportable payment

Payments subject to backup withholding.
Backup withholding can apply to most kinds of payments that are reported on Form 1099. These include:
Interest payments (Form 1099-INT),
Dividends (Form 1099-DIV),
Patronage dividends, but only if at least half the payment is in money (Form 1099-PATR),
Rents, profits, or other gains (Form 1099-MISC),
Commissions, fees, or other payments for work you do as an independent contractor (Form 1099-MISC),
Payments by brokers (Form 1099-B),
Payments by fishing boat operators, but only the part that is in money and that represents a share of the proceeds of the catch (Form 1099-MISC), and
Royalty payments (Form 1099-MISC).
Gambling winnings (Form W-2G) may also be subject to backup withholding.


Payments that are excluded from Backup Withholding are real estate transactions, foreclosures, and abandonment's, cancelled debts, distributions from Archer MSAs, long term care benefits, distributions forma any retirement account, distributions from an employee stock ownership plan (ESOP), fish purchases for cash, unemployment compensation, state or local income tax refunds, and qualified tuition program earnings.

Some payees are exempt from backup withholding. For a list of exempt payees and other information, see Form W-9,

Payees Exempt From Backup Withholding
Even if the payee does not provide a TIN in the manner
required, you are not required to backup withhold on any
payments you make if the payee is:
1. An organization exempt from tax under
section 501(a), any IRA, or a custodial account under
section 403(b)(7) if the account satisfies the requirements
of section 401(f)(2),
2. The United States or any of its agencies or
instrumentalities,
3. A state, the District of Columbia, a possession of
the United States, or any of their political subdivisions or
instrumentalities,
4. A foreign government or any of its political
subdivisions, agencies, or instrumentalities, or
5. An international organization or any of its agencies
or instrumentalities.
Other payees that may be exempt from backup
withholding include:
6. A corporation,
7. A foreign central bank of issue,
8. A dealer in securities or commodities required to
register in the United States, the District of Columbia, or
a possession of the United States,
9. A futures commission merchant registered with the
Commodity Futures Trading Commission,
10. A real estate investment trust,
11. An entity registered at all times during the tax year
under the Investment Company Act of 1940,
12. A common trust fund operated by a bank under
section 584(a),
13. A financial institution,
14. A middleman known in the investment community
as a nominee or custodian, or
15. A trust exempt from tax under section 664 or
described in section 4947.

Payments Exempt From Backup
Withholding
Payments that are not subject to information reporting
also are not subject to backup withholding. For details,
see sections 6041, 6041A, 6042, 6044, 6045, 6049,
6050A, and 6050N, and their regulations. The following
payments are generally exempt from backup withholding.
Dividends and patronage dividends
• Payments to nonresident aliens subject to withholding
under section 1441.
• Payments to partnerships not engaged in a trade or
business in the United States and that have at least one
nonresident alien partner.
• Payments of patronage dividends not paid in money.
• Payments made by certain foreign organizations.
• Section 404(k) distributions made by an ESOP.
Interest payments
• Payments of interest on obligations issued by
individuals. However, if you pay $600 or more of interest
in the course of your trade or business to a payee, you
must report the payment. Backup withholding applies to
the reportable payment if the payee has not provided a
TIN or has provided an incorrect TIN.
• Payments of tax-exempt interest (including
exempt-interest dividends under section 852).
• Payments described in section 6049(b)(5) to
nonresident aliens.
• Payments on tax-free covenant bonds under
section 1451.
• Payments made by certain foreign organizations.
• Mortgage or student loan interest paid to you.
Other types of payment
• Wages.
• Distributions from a pension, annuity, profit-sharing or
stock bonus plan, any IRA, an owner-employee plan, or
other deferred compensation plan.
• Distributions from a medical or health savings account
and long-term care benefits.
• Certain surrenders of life insurance contracts.
• Distribution from qualified tuition programs or
Coverdell ESAs.
• Gambling winnings if regular gambling winnings
withholding is required under section 3402(q). However,
if regular gambling winnings withholding is not required
under section 3402(q), backup withholding applies if the
payee fails to furnish a TIN.
• Real estate transactions reportable under
section 6045(e).
• Cancelled debts reportable under section 6050P.
• Fish purchases for cash reportable under
section 6050R.
• Certain payment card transactions if the payment is
made on or after January 1, 2005, by a qualified payment
card agent (as described in Rev. Proc. 2004-42 and
Regulations section 31.3406(g)-1(f) and if the
requirements under Regulations section 31.3406(g)-1(f)
are met. Rev. Proc. 2004-42 is on page 121 of I.R.B.
2004-31.

Coz i belong to taxation profession, thats why i provide u detailed information.

Answer 2

If you don't know, don't check that you are exempt. In general, most people are not exempt from backup withholding. Some corporations are exempt for certain types of payments-like dividends.
Even though you may not have to pay backup withholding, you probably are not exempt.
I assume you are filling out a W-9.

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Answer 4

W9 is Request for Taxpayer Identification Number and Certification that you give to the requester. Normally, yes you can check "Exempt from backup withholding" unless it is required by the IRS for certain payments or it is required in your case. Read the instructions for Form W9 to see what applies for you.

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Answer 6

That's debatable and there are in fact multiple possible answers to the question

Answer 7

This is for people who owe back taxes, and are under IRS order to pay, if you do not, ALWAYS check it.

Answer 8

Don't believe that is correct

Answer 9

call your accountant or H&R block and ask.