What is the backup withholding tax rate that an employer must apply?

The correct backup withholding tax rate that an employer must apply is 28%. This rate is set by the IRS and is applicable when a taxpayer fails to provide a correct taxpayer identification number (TIN) or when the IRS notifies the employer that the TIN provided is incorrect. Backup withholding is generally applied to various forms of income, including interest and dividends, to ensure that the IRS can collect tax on income that may not have been reported by the taxpayer.

The rate of 28% reflects a specific policy of the IRS designed to address underreporting of income. If employers encounter situations where they need to apply backup withholding, understanding this rate is essential for compliance and proper tax reporting. This ensures that the necessary amount is withheld to cover potential tax liabilities.