What is Backup Withholding?
Backup withholding is a tax withholding requirement where payers must withhold 24% of payments to payees who haven't provided valid taxpayer identification information.
The withheld amount is sent to the IRS and credited against the payee's tax liability, similar to employment tax withholding.
When Backup Withholding Applies
- Payee fails to provide a TIN (SSN or EIN)
- Payee provides an incorrect TIN
- IRS notifies you of TIN/name mismatch (B-notice)
- Payee fails to certify they're not subject to backup withholding
- IRS notifies you to begin backup withholding on a payee
How to Avoid Backup Withholding
- Collect W-9s promptly – Before making first payment
- Verify TIN information – Use IRS TIN matching when possible
- Keep W-9s current – Update when information changes
- Respond to B-notices – Follow up on IRS mismatch notices
- Document your process – Show good faith compliance efforts
What is a B-Notice?
A B-notice (backup withholding notice) is a letter from the IRS informing you that a TIN on a 1099 doesn't match IRS records.
When you receive a B-notice, you must contact the payee to get corrected information. If they don't respond or the information is still incorrect, you must begin backup withholding.
Proper W-9 Collection Prevents Problems
Avoid backup withholding headaches by collecting accurate W-9 information from the start. Digital W-9 collection reduces errors and keeps you compliant.
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