I recently opened up a new account at the bank, and they asked me to complete a Form W-9. Is this necessary?

Your investment income is generally not subject to regular withholding, however, it may be subject to backup withholding to ensure that income tax is collected on this income.

Under backup withholding, when you open up a new account you must certify under penalties of perjury that your Social Security number is correct and that you are not subject to backup withholding. Form W-9, "Request for Taxpayer Identification Number and Certification", is used to make this certification. If you fail to make this certification on Form W-9, or similar statement, backup withholding may begin immediately on your new account, and 28% of the amount paid on your account will be withheld as federal income tax.

Backup withholding can apply to most kinds of payments that are reported on Form 1099. These include:

• Interest payments (Form 1099-INT),

• Dividends (Form 1099-DIV),

• Patronage dividends, but only if at least half the payment is in money (Form 1099-PATR),

• Rents, profits, or other gains (Form 1099-MISC),

• Commissions, fees, or other payments for work you do as an independent contractor (Form 1099-MISC),

• Payments by brokers (Form 1099-B),

• Payments by fishing boat operators, but only the part that is in money and that represents a share of the proceeds of the catch (Form 1099-MISC),

• Royalty payments (Form 1099-MISC), and

• Gambling winnings (Form W-2G) may also be subject to backup withholding.

The following payments are EXCLUDED from backup withholding:

• Real estate transactions,

• Foreclosures, and abandonments,

• Cancelled debts,

• Distributions from Archer MSA's,

• Long-term care benefits,

• Distributions from any retirement account,

• Distributions from an employee stock ownership plan (ESOP),

• Fish purchases for cash,

• Unemployment compensation,

• State or local income tax refunds, and

• Qualified tuition program earnings.

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