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Backup withholding

A form of tax withholding (at a rate of 28%) 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-EZ as your tax return.