Welcome to our Backup Withholding presentation. This material isn’t official guidance. In this video, we’ll cover: Backup Withholding, the CP2100 Notice and “B” Notices.

We hold payers responsible for knowing who they are paying. To accomplish this, payers are required to collect the legal name and taxpayer identification number, or TIN, from vendors they pay. The Form W-9 is usually used.

In general, backup withholding is required when a service vendor does not furnish their TIN timely or accurately.

“Backup withholding” refers to the taxpayer’s withholding from payments to service vendors, reportable on information returns.

The tax rate for backup withholding is currently set at 24%. Payments to vendors that could be subject to backup withholding may be for: Non-employee compensation, medical services, and other types of service-based income.

If the service vendor gives W-9 information that doesn’t match, or can’t be found on the databases, the IRS notifies the payer with a CP2100 Notice. Small payers with less than 50 incorrectly filed Form 1099s receive a CP2100A Notice.

Payers must respond to this notice timely or may be liable for backup withholding and penalties.

A CP2100 Notice lists information returns you filed with the IRS that don’t match the IRS database for the payees due to incorrect names or TINs. If you receive a CP2100 Notice, make sure the name and TIN you used matches the information the payee gave and that it is entered correctly.

If you reported the incorrect information or it changed after you filed the form, correct your records and include the correct information on any future information returns you file. You don’t have to send a notice to the vendor or the IRS.

If the CP2100 shows the same name and TIN that the payee originally gave you, then they likely gave you inaccurate information. You must send a B-Notice. Send the payee the first B-Notice and a Form W-9 within 15 business days.

The vendor must complete, sign, and return the W-9 to you. They certify, under penalties of perjury, that the name and number is correct.

Service vendors are subject to a penalty of $50 for each failure to furnish their correct TIN to a requestor – unless the failure is due to reasonable cause and not to willful neglect.

If the payee doesn’t return a completed Form W-9 within 30 days, you must start backup withholding of 24% from any payments you make to them until you receive their completed and signed Form W-9.

If the IRS notifies you in a subsequent year of a name/TIN mismatch for the same payee you already contacted with a first B Notice, send the second B Notice within 15 business days, but don’t include a Form W-9.

This second B Notice requires the payee to get a validation letter from the IRS, or a current social security card that shows their correct name and identification number. It includes detailed instructions the payee must follow to satisfy the requirements.

Apply a 24% backup withholding to all payments to this payee beginning 30 business days after you sent the second B Notice.

Continue to backup withhold until the payee gives you an IRS validation or current social security card.

When you do withhold from payments to a vendor, include both the federal income tax withheld and the gross amount of payments you made to them on their information return. B-Notices are also explained in the CP2100 Notice letter and in IRS Publication 1281.

Report all your backup withholding on Form 945, Annual Return of Withheld Federal Income Tax.

To learn more about Form 945, including the deposit requirements, download the instructions from Form 945 or Pub. 15, (Circular E), Employer’s Tax Guide. You can find these resources on backup withholding at IRS.gov: Publication 1281, Backup Withholding for Missing and Incorrect Name/TINs The Backup Withholding “B” Program and Form W-9, Request for Taxpayer Identification Number and Certification instructions.

Also, visit IRSvideos.gov for more resources. Thanks for watching!