IRS Issues Backup Withholding Error Notices
This is on the IRS Website
Tax Tip 2022-67
The IRS has issued backup withholding error notices to payors required to withhold tax from payments to certain payees. Notices CP2100 and 2100A were mailed to payors that need to correct errors on information returns they filed, and indicate what the payor needs to do when they receive one.
Backup withholding. The IRS requires payors to withhold taxes on certain nonwage payments (backup withholding) when:
- A payee fails to furnish the payor with a TIN – that is the Social Security # or Employer Identification Number.
- The IRS notifies the payor they are required to backup withhold because a payee underreported payments of interest or dividends on their tax return
- The payee failed to certify that they are not subject to backup withholding
Note: This problem typically is caused by a wrong SS# or EIN. The payee should give a W-9 to solve the problem.
Generally, the backup withholding rate is 24%.
Once the IRS notifies a payor to begin backup withholding for a payee, the payor must continue backup withholding until the payee provides or corrects the information listed in the CP 2100 or CP 2100A notice.(Usually giving a W-9)
A payor that fails to backup withhold is liable to IRS for the amount that should have been withheld from a payment (or payments). (Code Sec. 3406) Note: This means if the payor does not withhold the 24% and pay it to the IRS, the payor is liable!
CP 2100 or 2100A notices. The IRS sends payors a CP 2100 or CP 2100A notice because an information return that they filed doesn’t contain a payee’s taxpayer identification number (TIN), contains a TIN that doesn’t match the IRS’s records or contains an incorrect name/TIN combination. The notice also tells the payor to begin backup withholding for that payee.
What kind of payments are subject to backup withholding? Payments subject to backup withholding are reported on various information returns. The pertinent information returns include:
- Form 1099-B, Proceeds from Broker and Barter Exchange Transactions
- Form 1099-DIV, Dividends and Distributions
- Form 1099-G, Certain Government Payments
- Form 1099-INT, Interest Income
- Form 1099-K, Payment Card and Third-Party Network Transactions
- Form 1099-MISC, Miscellaneous Income
- Form 1099-NEC, Nonemployee Compensation
- Form 1099-OID, Original Issue Discount
- Form 1099-PATR, Taxable Distributions Received from Cooperatives
- Form W-2G, Certain Gambling Winnings
What to do after a CP 2100 or CP 2100A notice arrives. The notice will contain a list of the payor’s payees with information doesn’t match the IRS’s records. After receiving the notice, a payor will need to compare the payee information listed in the notice with the payor’s records and, if necessary, correct or update their records.
The notice will also tell the payor to start backup withholding on payments made to the payees listed in the notice that haven’t provided a TIN, provided an incorrect TIN, or haven’t certified that they aren’t subject to backup withholding.
Note. A payee can furnish their correct TIN and certify they aren’t subject to backup withholding using Form W-9, Request for Taxpayer Identification Number and Certification .
Payors are also responsible for backup withholding when the IRS notifies the payor that a payee is subject to backup withholding.