Backup Tax Withholding: What It Is, When It Applies, and How to Stop It (2025 Guide)

What is backup tax withholding?

Backup tax withholding is a flat 24% federal income tax that payers must withhold from certain 1099-reportable payments when a payee fails to provide a valid TIN, gives an incorrect TIN, doesn’t properly certify their TIN, or the IRS instructs you to withhold. IRS

Quick example: If you owe a contractor $1,000 and backup withholding applies, you withhold $240 and remit it to the U.S. Treasury, paying the contractor $760. IRS

Which payments can be subject to backup withholding?

Common 1099-type payments include:

• Interest and dividends
• Rents, profits, or other income
• Commissions, fees, and other payments to independent contractors
• Broker and barter exchange transactions
• Payment card and third-party network transactions
• Royalty payments
• Certain fishing boat proceeds and patronage dividends (cash portion) IRS

Note: Backup withholding generally applies to U.S. persons and not to nonresident aliens. IRS

When do you have to start backup withholding?

Start (or continue) withholding when any of the following is true:

1. The payee fails to furnish a TIN or the TIN is obviously invalid (not 9 digits).
2. The payee doesn’t certify the TIN when required.
3. The IRS sends you a CP2100/CP2100A “B-Notice” indicating a name/TIN mismatch.
4. The IRS notifies you that the payee underreported interest/dividends (C-program). IRS

Timing rules after a CP2100/CP2100A:

• Send the First B-Notice (with Form W-9) to the payee within 15 business days of receiving the IRS notice.
• If the payee doesn’t respond, begin backup withholding no later than 30 days after you received the IRS notice.
• For a Second B-Notice within 3 years, don’t include a W-9; the payee must obtain SSA/IRS validation of their TIN within 30 business days. IRS

How to stop backup withholding

You can stop when the payee provides a correct TIN and required certification. After a second B-Notice, you may only stop once you receive official SSA/IRS validation of the name/TIN. Payers generally stop within 30 days after receiving the acceptable documentation. Keep records of what you received and when. IRS

Reporting and remitting the tax

• Deposit withheld amounts using EFTPS on the required schedule.
• Report all backup withholding for the year on Form 945 (Annual Return of Withheld Federal Income Tax). IRS

How to avoid backup withholding in the first place

• Collect Form W-9s before the first payment.
• Use the IRS TIN Matching service (interactive or bulk) to validate name/TIN combos before filing 1099s. IRS

Tip for GetW9 users: Use GetW9 to request, collect, and track W-9s from all vendors before onboarding. Then run IRS TIN Matching to reduce B-Notices and backup withholding risk.

FAQs

Is backup withholding the same as payroll withholding?
No. Backup withholding applies to non-payroll payments (e.g., 1099 income) and is reported on Form 945. Payroll withholding is reported on Forms 941/940. IRS

Does backup withholding apply to 1099-NEC payments?
Yes—nonemployee compensation is a reportable payment that can be subject to backup withholding when the rules are triggered. IRS

What if I ignore a CP2100 notice?
Penalties can apply and you may be required to begin withholding. You must follow the B-Notice workflow and timing. IRS

Compliance checklist

• W-9 on file before payment
• Verify name/TIN via IRS TIN Matching
• Track IRS CP2100/CP2100A notices
• Send B-Notices on time
• Withhold 24% when required
• Deposit via EFTPS and file Form 945 IRS