What is backup withholding?

Backup withholding is a practice where the Internal Revenue Service (IRS) requires payers to withhold and send to the IRS a percentage of certain payments that aren’t typically subject to withholding. For Spruce, that means withholding 24% on savings interest payments. The withheld amount serves as a form of income tax payment for the interest recipient, similar to an employer withholding taxes from a paycheck.

Backup withholding on your Spruce Savings account interest payments can occur for one of three reasons:

1. You receive a notice from the IRS stating that you are subject to backup withholding because you didn’t report or underreported interest or dividends on a tax return. You either certified that you are subject to backup withholding in your Spruce account, or the IRS instructed the Bank to begin withholding after they sent you four notices.
2. IRS instructed the Bank to begin backup withholding because the name and Social Security Number (SSN) you provided doesn’t match their records.
3. You certify that you are subject to backup withholding by accident.

If your interest payments had taxes withheld, you will report that amount on your tax return along with the interest income from your Form 1099-INT.

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