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Some income can make you subject to estimated tax payments or backup withholding.
Estimated tax payments
Most income you receive has taxes withheld from it. However, with some income, no taxes are withheld -- but you must still pay taxes on the income. You're required to pay the taxes as you earn or receive the income.
Income that has no taxes withheld includes:
You must make estimated payments to the IRS for taxes you expect to owe on these kinds of income. If you had some taxes withheld on this income, you might still owe some taxes. You must make estimated payments if the difference between what you expect to owe and the amount withheld equals $1,000 or more.
To learn more, see the Estimated Tax (Form 1040ES) tax tip.
Banks, mutual funds, and brokerages usually don’t withhold taxes on income they distribute to or reinvest for you. However, these institutions might withhold taxes in certain situations. This type of withholding is called backup withholding. If this occurs, the Form 1099 you receive will report the amount withheld. There's more than one type of 1099:
Financial institutions are required to withhold taxes in these situations:
If the institution is required to withhold taxes, it will withhold taxes at a 28% rate. When you complete your return, report this amount as taxes paid so you don't pay taxes twice on the same income.