Legal Definition of Backup withholding: The IRS requires backup withholding for certain taxpayers, usually because of their past failure to pay taxes. Persons making certain payments to such taxpayers must withhold and pay to the IRS 31% of such payments | Learn about the legal definition and requirements of backup withholding, a necessary measure required by the IRS for certain taxpayers with a history of noncompliance with tax laws. As a business owner making payments to these taxpayers, you must withhold and pay a percentage to the IRS. Understand the purpose of backup withholding, who may be subject to it, and how to avoid it. Ensure compliance with tax laws and avoid potential penalties by keeping accurate records and reporting payments accurately. Click to learn more