Backup withholding “B” program

The backup withholding “B” program, under the authority of Treasury Regulation 31.3406(d)-5 and IRC 3406(a)(1)(b), provides a CP2100 or CP2100A notice to payers (a financial institution, business or person) who file certain information returns with incorrect taxpayer identification numbers (TINs) to begin backup withholding.

Backup withholding is a mandatory federal income tax withholding on reportable, non-payroll payments to payees under certain situations. When it applies, backup withholding requires a payer to withhold tax from payments not otherwise subject to withholding. Backup withholding is similar to withholding on a wage earner's income. Payees can claim credit for the BWH amounts on their annual income tax return.

Payee information

How do you become subject to backup withholding “B” program?

• You don't provide the payer your TIN in the required manner.
• The IRS notifies the payer that the TIN you provided is incorrect.

Will I get notice from the IRS before the backup withholding starts?

No. When you begin to receive payments reportable on Form 1099 or W-2G, you must furnish your TIN in writing to the payer and certify under penalties of perjury that it's correct. In some cases, the payer will give you Form W-9, Request for Taxpayer Identification Number and Certification PDF, or a similar form. If not, the form is available online for you to complete and provide to them.

The payer must begin backup withholding on all reportable payments immediately if no TIN is provided to the payer or if the TIN is obviously incorrect. A TIN is obviously incorrect if it is fewer than nine digits, more than nine digits, or includes an alpha character.

If the payer receives a notice from the IRS that the TIN is incorrect or missing on the Form 1099 they submitted to the IRS, they must begin backup withholding immediately.

Who sends the “B” notice to the payee?

A payee will receive a “B” notice from the payer notifying them they:

• Provided no TIN to payer or
• The name or TIN combination provided to the payer does not match IRS records.

What notice does the payee receive?

There are two “B” notices – titled the First “B” Notice and the Second “B” Notice. The payer must send the First “B” Notice and a Form W-9 to a payee the first time a payee is listed on the CP2100 or CP2100A notice. The payer must send the Second “B” Notice to a payee after the payee is listed on a CP2100 or CP2100A notice a second time within a three-year period.

How do I stop the backup withholding?

You must provide your correct TIN to the payer. Generally, the payee must provide the payer the following:

• For the First “B” Notice, a properly completed and signed Form W-9 (or acceptable substitute).
• For the Second “B” Notice, the payee must provide a copy of their Social Security card, or Letter 147C from the IRS verifying the name and the number are correct (EIN).

Payer information

How will you know to begin backup withholding?

The IRS will issue a CP2100 or CP2100A notice if the payee's TIN is missing or obviously incorrect (not 9 digits or contains something other than a number) or their name and TIN on the information return filed does not match the IRS's records. IRS issues CP2100 if you file 50 or more information returns that have error. IRS issues a CP2100A notice if you file less than 50 information returns that have errors. There is no difference in the type of information or instructions in the CP2100 notice and the CP2100A notice.

The notice informs you as the payer that you may be responsible to begin backup withholding if you haven't already done so. Most of the time, when a payer makes a reportable payment to a payee who didn’t provide their TIN or provided a TIN that was obviously incorrect, the payer must backup withhold when they make the payment. If you did not backup withhold on the payment and should have, begin backup withholding immediately. The CP2100/2100A notice is accompanied by a listing of missing and obviously incorrect TINs, and incorrect TINs that don’t match IRS records. Review Publication 1281, Backup Withholding on Missing and Incorrect Name/TINs (including Instructions for Reading Tape cartridges and CD/DVD Formats) PDF for more information.

Payers of income reported on Forms 1099-B, DA, DIV, INT, K, MISC, NEC, OID, and/or PATR may be eligible to participate in the TIN Matching program to verify TINs before filing. It enables validation of TIN and name combinations prior to submission of the information return. Interactive or bulk options are available. For more information, please go to Taxpayer Identification Number (TIN) Matching.

What to do if you receive a CP2100 or CP2100A notice?

Compare the listing(s) with your records.

• For TINs that are missing or are obviously incorrect: Determine if you are already backup withholding on the account. If you are not, begin backup withholding immediately. You must make up to three solicitations for the TIN (initial, first annual, second annual) to avoid a penalty for failing to include a TIN on the information return.
• For incorrect TINs that don’t match IRS records: Compare the accounts on the listing with your business records. If they agree, send the appropriate "B" notice to the taxpayer (payee). If an account does not agree, this could be the result of a recent update, an error in the information you submitted, or an IRS processing error. If this is what happened, the only thing you should do is correct or update your records.

NOTE: Please don’t call or write to the IRS to say you've corrected your records.

Reporting backup withholding

Report backup withholding on Form 945, Annual Return of Withheld Federal Income Tax. Also, report the amount of the payment (renumeration) and backup withholding on Forms W-2G, 1099-B, 1099-DA, 1099-DIV, 1099-G, 1099-INT, 1099-K, 1099-MISC, 1099-NEC, 1099-OID, or 1099-PATR even if the amount of the payment is less than the amount for which an information return is normally required.

Where to call for help

If you have any questions about backup withholding, information reporting, Forms 1099, or the CP2100 or CP2100A notices and listing(s), you may call the Information Reporting Program Customer Service Section (call site):

Toll-Free Telephone: 866-455-7438

Hours: 8:30 a.m. to 4:30 p.m. Monday through Friday EST