what is backup withholding 
backup withholding is a tax that is levied on investment income at an established tax rate as the investor withdraws it for payments not subject to withholding payers are required to withhold the tax backup withholding helps to ensure that government tax collecting agencies such as the internal revenue service 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 tins at the time the investor withdraws his or her investment income the amount mandated by the backup withholding tax is remitted to the government immediately providing the tax collecting body with the required funds but leaving the investor with less short term cash flow 