IRS Backup Withholding Calculator

Backup withholding is a 24% federal income tax withheld from certain payments (like 1099 income) when the payee fails to provide a correct taxpayer identification number (TIN) or when the IRS notifies you that the payee underreported income. It serves as a mechanism to ensure tax collection when normal withholding doesn't apply.

The backup withholding rate is 24% for 2025 (and has been 24% since 2018). This rate was reduced from 28% by the Tax Cuts and Jobs Act (TCJA) of 2017. The rate equals the fourth lowest tax rate under IRC § 1(c).

Backup withholding is triggered when: (1) The payee fails to provide their TIN on Form W-9, (2) The IRS notifies you the TIN is incorrect (CP2100/CP2100A notice), (3) The IRS notifies you the payee underreported interest or dividends, (4) The payee fails to certify they are not subject to backup withholding, or (5) The IRS directs you to start backup withholding.

A B-notice is an IRS notification (CP2100 or CP2100A) informing you that a payee's TIN doesn't match IRS/SSA records. Upon receiving a B-notice, you must send the payee a "B-notice" requesting a corrected Form W-9. If the payee doesn't respond within 30 business days, you must begin backup withholding on future payments.

You must begin backup withholding no later than 30 business days after receiving the IRS CP2100/CP2100A notice. This gives the payee time to correct their TIN. During this 30-day period, you should send a B-notice to the payee but don't need to withhold yet.

Backup withholding stops when: (1) You receive a corrected Form W-9 from the payee with a valid TIN that matches IRS/SSA records, (2) The IRS notifies you that backup withholding is no longer required, or (3) The account is closed. Once stopped, you don't apply backup withholding to future payments, but previously withheld amounts remain with the IRS.

Report backup withholding on Form 945 (Annual Return of Withheld Federal Income Tax), which is due February 2 of the following year (February 10 if you made timely deposits). You must also report the withholding on the appropriate information return (Form 1099-NEC, 1099-MISC, 1099-INT, etc.) given to the payee.

Yes. If backup withholding was applied, the payee can claim it as a credit against their tax liability on their income tax return (Form 1040 for individuals, Form 1120 for corporations). If the withholding exceeds their tax liability, they'll receive a refund. The payee needs the Form 1099 showing the backup withholding amount.

Backup withholding applies to reportable payments including: interest, dividends, rents, royalties, commissions, nonemployee compensation (1099-NEC), broker/barter transactions, payments by fishing boat operators, and some other payments reported on information returns. It does NOT apply to wages reported on Form W-2.

Yes, if your total backup withholding exceeds $2,500 during the year. Backup withholding follows the same deposit schedules as other withheld taxes (monthly or semi-weekly, depending on your lookback liability). Use the Electronic Federal Tax Payment System (EFTPS) to make deposits.

If you fail to backup withhold when required, you may be liable for the tax that should have been withheld, plus penalties and interest. The IRS can assess the unwithheld amount against you directly. This makes it critical to comply with B-notices and IRS backup withholding directives.

You can use the IRS TIN Matching Program (available to payers who file 250+ information returns) to verify that payee name/TIN combinations match IRS records before filing. This helps prevent CP2100/CP2100A notices. You can also participate in the IRS Combined Annual Wage Reporting (CAWR) program.