Overview

Backup withholding is a tool the IRS uses to protect tax revenue when information reporting is incomplete or incorrect. The payer (bank, broker, or business) must withhold a flat percentage of certain payments and remit it to the IRS when required. The current rate for backup withholding is 24% (IRS guidance) and taxpayers can generally claim any withheld amounts as a tax payment when they file their return (see IRS Topic No. 307).

When backup withholding can be triggered

  • You did not provide a Taxpayer Identification Number (TIN) or provided an incorrect TIN to the payer.
  • You did not certify your TIN when required (for example, on Form W‑9).
  • The IRS notified the payer that you underreported income on a prior return (payer received a notice).
  • The payer received certain IRS notices (B‑notice) about a mismatched or missing TIN and did not get a corrected TIN in time.

Common payments subject to backup withholding

Interest, dividends, broker proceeds, patronage dividends, certain payments reported on 1099 series forms, and other reportable payments can be subject to backup withholding. For specifics and examples, consult IRS Topic No. 307 (IRS: Backup Withholding) and the instructions for the relevant information return.

How to stop backup withholding (practical steps)

  1. Furnish a correct TIN immediately. Complete and return Form W‑9 to the payer so they can update records (see Form W‑9 guidance). Link: Form W‑9.
  2. Respond quickly to IRS or payer notices. If you receive a notice about underreporting, follow the instructions — sometimes that requires amending a past return or providing documentation to the IRS.
  3. Ask the payer to stop withholding once they have a validated TIN or confirmation that the IRS issue is resolved. Payers generally stop withholding after they receive the corrected documentation.
  4. If withholding continues in error, request a refund from the payer for the withheld amount or claim the credit on your federal income tax return when you file.

What payers must do

Payers must solicit and reasonably verify payee TINs, send TIN mismatch notices when they arise, withhold the backup rate when required, deposit withheld taxes and report them to the IRS — typically using Form 945 for withheld federal income tax and the applicable 1099 showing withheld amounts (IRS: Form 945). For operational guidance for payers, see our article on handling backup withholding and filing requirements: How to Handle Backup Withholding and Filing Form 945.

Recovering or claiming withheld tax

  • Taxpayers should include backup withholding amounts as federal income tax withheld on their Form 1040. If the payer incorrectly withheld, you can claim a refund on your return or request the payer refund the amount and issue a corrected information return (1099).
  • If you believe the IRS notified a payer in error, follow the notice instructions and keep records of any corrected returns or communications.

Tips from practice

In my work with clients, the fastest way to stop backup withholding is to return a completed Form W‑9 and follow up with the payer by phone or email. Keep copies of the W‑9 and any correspondence. If you receive an IRS notice about underreporting, act within the time stated — delays often prolong withholding and complicate refunds.

Common mistakes to avoid

  • Waiting to provide a W‑9 until after you receive payment. Provide it before work begins.
  • Ignoring IRS or payer notices. Even if you disagree with the notice, respond and document your position.
  • Assuming backup withholding only impacts individuals — businesses and vendors can be affected too.

FAQ — short answers

Q: How much is withheld?
A: The flat backup withholding rate is 24% (current IRS rate).

Q: How do I get the withheld money back?
A: Claim it as federal income tax withheld on your federal return or request a refund from the payer and a corrected 1099 if the withholding was incorrect.

Professional disclaimer

This article provides general information about U.S. federal backup withholding rules and is not personalized tax advice. For advice specific to your situation, consult a qualified tax professional or the IRS (see links below).

Authoritative sources

Internal resources