A form of tax withholding (at a rate of 24%) on income from stock sales, interest, dividends, or other types of payments reported on IRS Form 1099. Brokerage firms are required to make backup withholding on stock sales when the client has not completed and filed Form W-9 (for US tax residents) or Form W-8BEN (for nonresidents).

You can recover backup withholding with your tax return. (Nonresident aliens can file a US tax return if they obtain a tax identification number by completing IRS Form W-7, which must be submitted along with the tax return.) If backup withholding is the only reason for the filing, you complete and submit Form 1040NR as your tax return.

Alert: Backup withholding is different than nonresident alien (NRA) withholding based on IRS Form 1042-S. That applies at the rate of 30% (or applicable treaty rate) for US-sourced interest and dividends but not gross proceeds from capital gains transactions paid by a US corporation (or by certain non-US corporations that have generally derived 25% or more of their gross income from sources within the United States).