What does Federal interest withheld mean ? ?

Question

I was checking my savings account transactions today and I saw any entry which said Federal interest withheld .Though the amount debited from the account was very less (a few cents) I am just confused about what this transaction is..I have raised a request asking about it but can someone please explain it to me ?

Thanks

Answer 1

When did you open the account?

When you open a bank account, you fill out a form W-9.  On that form you indicate your SSN/ITIN, your name, your address and whether or not you are exempt from backup withholding.  (Foreigners fill out a W-8 Ben and these expire every 3 years.)

If there is an error or mismatch on your W-9 (say you got married and changed your last name), the IRS requires the bank to start withholding money for income taxes.  (28% on the W-9 and 30% on the W-8Ben.)  You will get credit for the tax withheld at tax time by simply attaching a copy of your 1099-INT to the tax return.

Call the bank.  After 9/11, banks started cleaning up their record keeping and discovered they had lost many of the W-9s.

Answer 2

There are a couple things that could have happened here.  The designation "Federal Interest Withheld" doesn't make any sense, but most banks word things differently.

1.  If you choose to, you can have Federal taxes withheld from your Interest Income, or at regular intervals throughout the year.  That could be what the debit is, which would explain the way it's designated on your statement.

2.  It is possible they deposited too much interest into your account, and that's their way of designating the reversal.

That's about all I can come up with if it's being taken out of your account.  Ultimately you would need to check with your bank.

Hope this helps!!

Aside to "v b":  I didn't think of that.  I hadn't ran across this before, so I didn't really know, but it's always good to learn something new!