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Backup withholding, explained
When a payee won't give you a correct TIN, the law makes you hold back 24% of what you pay them and send it to the IRS. Here's when it starts, when it stops, and how to deposit and report it.
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Short answer
Backup withholding is a flat 24% that a payer must hold back from reportable payments, such as contractor pay, rent, interest and dividends, when the payee doesn't give a TIN, when a name/TIN mismatch isn't fixed after a B notice, or when the IRS orders it. The payer deposits it, reports it in box 4 of the payee's 1099 and on Form 945. For tax years after 2025, the threshold for reporting and backup withholding on 1099-NEC and 1099-MISC payments is $2,000 (it was $600).
- After a CP2100: start within 30 business days if the TIN isn't fixed
- Stop within 30 calendar days of getting the required W-9 or validation
- Form 945 due January 31 (February 10 if all deposits were on time)
- Corporations and tax-exempt organizations are generally exempt payees
Last reviewed against IRS Publication 1281 and Publication 1099 (2026).
24% calculator One line per payment to the payee.
| Payment | Withhold (24%) | Pay the payee |
|---|
When backup withholding applies
| Situation | Start | Stop when |
|---|---|---|
| Payee didn't give you a TIN | Right away, on reportable payments | They give you a TIN on a W-9 |
| IRS says name/TIN don't match (first time) | Within 30 business days of the CP2100, if no signed W-9 comes back after the B notice | They return a signed, certified W-9 |
| IRS says name/TIN don't match (second time in 3 years) | Within 30 business days of the CP2100, if no Social Security card copy or IRS letter comes back | They provide a copy of their Social Security card (SSN) or IRS Letter 147C (EIN) |
| IRS notice that the payee underreported interest or dividends | As the IRS notice directs | The IRS tells you to stop |
It applies to reportable payments: contractor and other 1099-NEC and 1099-MISC payments, interest, dividends, broker proceeds and similar. It doesn't apply to wages (those have regular withholding) or to exempt payees like corporations and tax-exempt organizations. The full B notice timeline is in our CP2100 & B notice guide, with a deadline calculator.
Depositing and reporting it
- Withhold 24% of each payment while backup withholding applies. The calculator above does the arithmetic.
- Deposit it electronically with your other federal tax deposits (for example through EFTPS), on the deposit schedule that applies to your Form 945.
- Report it on the payee's 1099: the full payment in the usual box and the amount withheld in box 4. A 1099 is required whenever you backup withhold, even below the normal threshold.
- File Form 945 for the year's total, by January 31 (February 10 if every deposit was on time; later if the date falls on a weekend or holiday). Backup withholding goes on Form 945, not Form 941.
The 2026 threshold change
For tax years beginning after 2025, the minimum amount for reporting certain payments on information returns and for performing backup withholding on them rose to $2,000 (from $600), and the IRS says it may be adjusted for inflation from 2027. Royalties, interest and dividends keep their own thresholds.
Related tools
- Got a CP2100? The CP2100 and B notice guide has the deadlines.
- Ask for the missing TIN with the W-9 request letter.
- Check what came back with the TIN format checker.
- Who's exempt: how to fill out a W-9 (line 4 exempt payee codes).
Sources
Questions
Backup withholding questions
What is backup withholding?
Federal income tax a payer must hold back, at a flat 24%, from reportable payments such as contractor pay, interest or dividends when the payee hasn't provided a correct taxpayer identification number, or when the IRS says to. The payer sends it to the IRS and the payee claims it as a credit on their own tax return.
When do I have to start backup withholding?
When a payee doesn't give you a TIN when you ask for one, when the IRS tells you a payee's name and TIN don't match and the B notice process doesn't fix it, or when the IRS tells you to because the payee underreported interest or dividends. If a payee never gave you a TIN, you withhold right away on reportable payments.
When can I stop backup withholding?
When the payee gives you what's required: a TIN on a W-9 for a missing TIN, a signed W-9 after a first B notice, or a copy of the Social Security card or an IRS Letter 147C after a second B notice. Generally you stop within 30 calendar days of receiving it. For IRS-ordered withholding, you stop when the IRS tells you to.
How do I report backup withholding?
Report the payment and the amount withheld (in box 4) on the payee's 1099, and report the year's total backup withholding on Form 945, Annual Return of Withheld Federal Income Tax. Form 945 is due January 31, or February 10 if you deposited all of it on time (moved to the next business day when the date falls on a weekend or holiday). Don't put backup withholding on Form 941.
Do I file a 1099 if the payment was below the threshold?
Yes. If you backup withheld any amount from a payee, you must file a 1099 for them, even if the total paid was under the usual reporting threshold.
Are any payees exempt?
Yes. Corporations, tax-exempt organizations, government entities and some others are exempt payees and aren't subject to backup withholding. Their W-9 shows an exempt payee code on line 4.
Is anything I enter here sent to EFileForMe?
No. The calculator runs in your browser and nothing is sent or saved.
Get the TIN right and skip the withholding
EFileForMe collects W-9s online, checks names and TINs with the IRS, and e-files your 1099s, including box 4 when you did have to withhold.