Understanding your CP542 Notice

 

What this notice is about

This notice is sent to tell the taxpayer they’re no longer subject to backup withholding and we’ve notified the payers we previously instructed to start backup withholding to stop backup withholding.


What you need to do

  • Verify that payers withholding on interest or dividend income received the notice to stop backup withholding. If they didn’t, provide a copy of the notice to them by December 31.
    • The payer will stop withholding within 30 days. 
  • Keep a copy for your records.

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Frequently asked questions

What is backup withholding?
Backup withholding is withholding on mostly interest and dividend income that the payer will withhold when we instruct them to do so.

What is the backup withholding rate?
The current rate is 24% and can increase or decrease with the tax laws. 

How long will the payer continue backup withholding?
The payer should continue until we instruct them to stop or until the payee provides written certification from us that they’re no longer subject to backup withholding.


Tips for next year

  • File your tax return timely
  • Report all interest and dividend income
  • Pay all taxes due

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