what does “backup witholding” mean when the bank want you to sign some forms when you open an account?
Q. I opened an account online and they won’t release my opening deposit until I sign some “agreement”. This ‘relationship’ agreement wants me to check a box saying that I will be subject to backup withholding for under reporting of interest. But I haven’t had massive amounts of interest on my accounts, so I just wonder what it–backup witholding–means so that I don’t sign my life away.
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What they are asking is if you have had lots of interest income in the past but haven’t paid any taxes on it. Unless you have recieved a notice from the IRS specifically telling you that you need to have a back up withholding, don’t worry about it. Just say that you are not subject to this withholding and open up that account
Short answer if you don’t know what it means your not subject to it.
You are required to give a valid Social Security number to the bank when opening an account. If you don’t, the bank is required to withhold taxes from the interest you earn. I think Backup withholding is 20%, but I’m not sure.
I’ve seen backup withholding as low as 20 cents for a year’s worth of interest of $1.00 (One dollar)