Two trigger programs
What causes backup withholding to start?
The IRS runs two separate programs that mandate backup withholding. Understanding which one applies to you determines how to fix it.
BWH-B — TIN problem
The most common trigger. Backup withholding under the BWH-B program begins when the TIN you gave (or failed to give) a payer does not match IRS records. Common causes include:
- You never submitted a Form W-9 to the payer, so they have no TIN on file.
- A typo on the W-9 — transposed digits in your Social Security Number (SSN) or Employer Identification Number (EIN).
- A name change (marriage, divorce, legal name change) that does not match the name the Social Security Administration has on file.
- An incorrect entity type selected on the W-9 (for example, checking "individual" when the account is under a business EIN).
When the IRS detects the mismatch, it sends a notice to the payer, who then sends you a B notice. You have a set window to respond before withholding begins or continues.
BWH-C — underreported income
Less common but harder to resolve. The IRS triggers BWH-C when it determines that you underreported interest or dividend income on a prior tax return. The IRS sends you a CP2100 or CP2100A notice (sometimes called a C notice), and simultaneously notifies your payers to begin withholding.
To stop BWH-C, you must either pay the tax on the underreported income, file any missing returns, or demonstrate that you did in fact report the income correctly. You must also certify to the payer that you are not subject to backup withholding for underreporting.
Which payments are subject to backup withholding?
| Payment type | Reported on | Subject? |
|---|---|---|
| Interest | 1099-INT | Yes |
| Dividends | 1099-DIV | Yes |
| Independent contractor pay | 1099-NEC | Yes |
| Rents, royalties, other | 1099-MISC | Yes |
| Payment card / third-party network | 1099-K | Yes |
| Broker proceeds | 1099-B | Yes |
| Gambling winnings | W-2G | Yes |
| Wages | W-2 | No |
| Retirement distributions | 1099-R | No |
| Cancelled debt | 1099-C | No |
| Real estate transactions | 1099-S | No |
| Unemployment benefits | 1099-G | No |
How does the B notice process work?
When the IRS detects a TIN mismatch, the payer receives instructions to notify you. The process has two levels:
If you fail to respond to either notice, the payer must begin withholding 24% from your future payments. The payer has no discretion here — the IRS obligates them to withhold.
Stopping and recovering
How do you stop backup withholding?
The fix depends on which program triggered it:
| Trigger | How to stop it |
|---|---|
| Missing or incorrect TIN (BWH-B) | Provide a corrected Form W-9 with the right TIN and legal name to every payer withholding from you. For a second B notice, also supply SSA or IRS documentation. |
| Underreported income (BWH-C) | Pay the tax owed on the unreported income, file any missing returns, and request the IRS to stop notifying payers. You must also certify on the W-9 that you are no longer subject to BWH for underreporting. |
Once the underlying issue is resolved, the payer is required to stop withholding. There is no separate form to file with the IRS to halt BWH-B — the corrected W-9 itself is the mechanism. For BWH-C, the IRS sends a stop notice to your payers after you resolve the underreporting.
Can you get the withheld money back?
Yes. Backup withholding is a tax credit, not a penalty. When you file your federal return (Form 1040), report all income from which backup withholding was taken and enter the total amount withheld. It offsets your tax liability dollar for dollar, just like regular W-2 withholding. If the credit exceeds your tax, you receive the excess as a refund.
The amount appears on the information return you receive from the payer (for example, Box 4 of Form 1099-NEC, or Box 4 of 1099-INT). Make sure you include it on your return — if you omit it, you lose the credit.
The 2026 reporting threshold change
For payments made in calendar year 2026 under IRC sections 6041(a) and 6041A(a), the aggregate reporting threshold has been raised from $600 to $2,000 per payee by P.L. 119-21. This means payers are not required to file information returns (and backup withholding does not apply) for these specific payment types until they exceed $2,000 in a calendar year. This change primarily affects miscellaneous income and nonemployee compensation. Other payment types (interest, dividends, broker proceeds) retain their own separate thresholds.
Common mistakes that trigger backup withholding
Most backup withholding is avoidable. These are the mistakes that cause it:
- Ignoring a W-9 request. If a payer asks for a W-9 and you do not return it, they must begin withholding. Freelancers and independent contractors starting with a new client: fill out the W-9 before the first payment.
- Legal name mismatch. The name on your W-9 must match exactly what the SSA has on file. After a name change, update the SSA first (Form SS-5), then submit a new W-9 to all payers.
- Using the wrong TIN type. Sole proprietors can use either their SSN or an EIN, but the TIN must match the entity type checked on the W-9. If you check "individual" but enter a business EIN, the IRS will flag a mismatch.
- Forgetting a 1099 on your return. If you receive a 1099-INT or 1099-DIV and do not include it on your return, the IRS matching program will detect the discrepancy and may trigger BWH-C. Even if you do not owe additional tax (for example, because the amount is below the filing threshold), failing to report it can start the C-notice process.
Questions
Backup withholding FAQ
What is backup withholding and why is 24% taken from my payment?
Backup withholding is a flat 24% tax the IRS requires payers to deduct from certain payments when normal tax reporting safeguards have failed. It typically kicks in because you did not provide a valid taxpayer identification number (TIN) on Form W-9, or because the IRS notified the payer that the TIN you gave does not match its records. The withheld amount is sent directly to the IRS and credited to your account, similar to regular income tax withholding.
Which types of income are subject to backup withholding?
Backup withholding can apply to interest, dividends, rents, royalties, nonemployee compensation reported on 1099-NEC, payment card and third-party network transactions reported on 1099-K, broker and barter exchange proceeds, gambling winnings reported on W-2G, and certain government payments. It does not apply to wages on W-2, real estate transactions, foreclosures, cancelled debt, retirement distributions, or unemployment compensation.
How do I stop backup withholding?
You must correct the reason it started. If it was triggered by a missing or incorrect TIN, provide your correct TIN to the payer by submitting a new Form W-9. If it was triggered by underreported income (a C notice from the IRS), you must pay all tax owed, file any missing returns, and request the IRS to stop sending C notices to your payers. Once the underlying issue is resolved, the payer is required to stop withholding.
What is a B notice and what should I do when I get one?
A B notice is a letter from a payer informing you that the TIN on your account does not match IRS records. The first B notice asks you to provide your correct name and TIN by filling out a new Form W-9. If you receive a second B notice within three years, you must also provide documentation from the Social Security Administration or IRS verifying your TIN. If you do not respond, the payer must begin backup withholding at 24%.
Can I get a refund of backup withholding?
Yes. Backup withholding is not an extra tax. It is a prepayment of your regular income tax. When you file your federal return, report the amount withheld on the appropriate line and it will be credited against your total tax liability. If the withholding exceeds what you owe, you receive the difference as a refund.
Does backup withholding apply to payments under a certain dollar amount?
For 2026, payments subject to reporting under sections 6041(a) and 6041A(a) of the Internal Revenue Code are not reportable, and therefore not subject to backup withholding, until they exceed $2,000 in aggregate during the calendar year. This threshold was raised from $600 by P.L. 119-21. However, other payment types such as interest and dividends have different or no dollar thresholds.
- Sources: IRS Topic No. 307 (Backup Withholding) · IRS Publication 505 (Tax Withholding and Estimated Tax, 2026) · IRS Instructions for Form W-9 Requester · P.L. 119-21 (2026 reporting threshold).
- 🔄 Last updated August 4, 2026 · Tax year 2026
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