What does "backup withholding" mean?

Backup withholding is a tax amount that is taken from certain payments under a specific set of circumstances. Not everyone is subject to backup withholding, and those who are receive a "B" form from the IRS.

Backup withholding is a flat 28 percent rate that is taken out of gambling winnings, interest, royalties and other forms of income that go on a 1099. At the request of the IRS, this income is taken out by the payer before the payee receives the other 72 percent of the income. Reasons for backup withholding include not giving the payer a correct Social Security number and underreporting past income.