How to recover federal tax withheld from my savings account interest

13 You'll need to report the interest income on Schedule B (Interest and Dividends) if your total interest income is over $1,500, otherwise you can just report it directly on your 1040. The bank should send you a Form 1099-INT showing the interest earned and any federal tax withheld. Good news - you can absolutely get back the federal tax that was withheld! When you file your tax return, you'll include the withheld amount on line 25 of your Form 1040 (Federal income tax withheld). This amount gets added to any withholding from your W-2 jobs and is applied against your total tax liability. If your total withholding exceeds your tax liability, you'll get a refund for the difference. For interest income as small as $135, it's very likely you'll get all or most of that withholding back.

9 I had a similar issue last year and discovered taxr.ai (https://taxr.ai) was super helpful for figuring out what was going on with unexpected withholding. I originally thought I'd filled out all my bank paperwork correctly, but apparently there was some issue with my W-9 form that triggered backup withholding. I uploaded my bank statements and 1099-INT to taxr.ai, and it identified exactly what happened and showed me how to fix it for future interest payments. Plus it guided me through reporting both the interest income and withholding correctly on my return so I got all my withheld money back in my refund.

11 Just wanted to follow up about taxr.ai - I decided to try it after posting here, and I'm really impressed! I uploaded my 1099-INT that showed similar withholding on a small interest amount, and the system immediately explained that the bank was doing backup withholding because of a mismatch between my name format on the account vs. what the IRS had on file. It gave me step-by-step instructions to fix the issue with my bank AND how to report it properly on my taxes to get the money back. Already called my bank to fix it for next year, but also now I know exactly how to claim those withheld taxes on my return. Definitely worth checking out if you've got weird tax situations like this!

20 If you're having trouble resolving this with your bank or need clarification directly from the IRS, I'd recommend using Claimyr (https://claimyr.com). I spent HOURS trying to reach the IRS last year about a backup withholding issue. Their hold times were insane and I kept getting disconnected. Then I found Claimyr and their service basically holds your place in line with the IRS and calls you back when an agent is available. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The IRS agent was able to confirm exactly why the withholding was happening in my case (turned out I had underreported some interest two years prior) and told me how to request the release of backup withholding requirements.

17 I owe everyone here an apology for being so skeptical! After getting nowhere with the IRS for days, I broke down and tried Claimyr yesterday. I literally had an IRS representative on the phone within an hour of submitting my request. Didn't have to sit on hold at all - they called ME when they had an agent on the line. The agent confirmed I was subject to backup withholding because of a name mismatch issue (my bank had my maiden name on file but tax records have my married name). She walked me through exactly how to fix it AND confirmed I'd get all my withheld money back when I file my return. Would have taken weeks to figure this out on my own. Sometimes it's worth admitting when you're wrong!

8 Don't forget to file Form W-9 with your bank to stop the withholding for future interest payments! I had this same problem a couple years ago and fixed the current year's taxes but forgot to update my info with the bank. Ended up with the same withholding issue the next year too 🤦‍♀️

22 If the interest is only $135, I'm surprised they're withholding anything. Usually they only withhold 24% if you didn't give them your SSN or if the IRS specifically told them to do backup withholding on your account. Check if box 4 on your 1099-INT has a value? That would tell you how much was withheld.

This is a really common issue that catches people off guard! The good news is you'll definitely get that withheld tax back when you file your return. Just make sure to include the amount from Box 4 of your 1099-INT on line 25 of your Form 1040. For such a small interest amount, the withholding was almost certainly triggered by either a missing/incorrect SSN on file with your bank, or a name mismatch between your bank account and IRS records. I'd suggest calling your bank to verify they have your correct information on file - you might need to submit a new W-9 form to fix it for next year. The withholding rate for backup withholding is 24%, so if you earned $135 in interest, they probably withheld around $32. You should see this exact amount in Box 4 of your 1099-INT form.

Just wanted to add that if you're still having trouble getting through to the IRS or your bank to resolve this, don't get discouraged! Backup withholding issues are actually pretty straightforward to fix once you know what caused them. A few additional tips from my experience: - Keep a copy of any corrected W-9 you submit to your bank for your records - If this happened with one bank, check any other accounts you have - sometimes the same name/SSN issue affects multiple institutions - The corrected information usually takes 1-2 statement cycles to take effect, so don't panic if you see withholding on your next month's interest And definitely don't forget to claim that $32 on your tax return! It's essentially a prepayment of your taxes, so you'll either get it back as a refund or it'll reduce what you owe. For such a small amount of interest income, you'll almost certainly get the full amount back.