Tax that is levied on investment income, at an established tax rate, as the investor/lender withdraws it. Backup withholding
helps to ensure that government tax-collecting agencies (such as the IRS or Canada Revenue Agency) will be able to receive
income taxes owed to them from investors' earnings. Backup withholding may be applied when an investor has not met rules regarding
taxpayer identification numbers (TIN). At the time the investor withdraws his or her investment income, the amount mandated
by the backup withholding tax is remitted to the government, providing the tax-collecting body with the required funds immediately,
but leaving the investor with less short-term cash flow.
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