An IRS 6042(c) letter from your bank or brokerage — usually called a “B-Notice” — means the name and Taxpayer Identification Number on your account don’t match what the IRS or Social Security Administration has on file. If you don’t correct the mismatch, the institution has to start withholding 24% of your future dividends, interest, and other reportable payments and send it to the IRS.1Internal Revenue Service. Backup Withholding How you fix it depends on one thing: whether this is the first B-Notice for your account or the second within three years.
Why You Received the Letter
Internal Revenue Code Section 6042 requires any entity paying $10 or more in dividends during a calendar year to report those payments to the IRS along with the recipient’s name and TIN.2Office of the Law Revision Counsel. 26 U.S. Code 6042 – Returns Regarding Payments of Dividends and Corporate Earnings and Profits When the IRS cross-checks that filing and finds a name-TIN combination it can’t match, it tells the payor, and the payor has to pass the problem to you.
The usual causes are small clerical ones: a transposed digit in a Social Security Number, a name change after marriage that was never updated with the SSA, a typo at account opening. The cause doesn’t change the fix, but checking an original document before you respond keeps you from resubmitting the same wrong information.
First B-Notice or Second B-Notice
Your letter should state whether it is the first or second time the payor has been told your TIN is wrong. The two have very different cures.
A first B-Notice is the opening round. The payor must send you the notice along with a blank Form W-9, and you can resolve the mismatch by completing and returning the W-9 with correct information.3Internal Revenue Service. Backup Withholding “B” Program
A second B-Notice means the payor has been notified about the same account twice within three years. A W-9 by itself is no longer enough. You have to obtain independent verification of your TIN directly from the SSA or IRS and give that to the payor before withholding can stop.3Internal Revenue Service. Backup Withholding “B” Program
Confirm which one you have before you do anything else. Everything that follows depends on it.
Responding to a First B-Notice
Start by verifying your actual TIN against a primary document: your physical Social Security card, a recent IRS notice showing your number, or, for a business entity, the original EIN assignment letter. Then complete Form W-9.4Internal Revenue Service. About Form W-9, Request for Taxpayer Identification Number and Certification Non-resident aliens and foreign entities use the appropriate W-8 instead.5Internal Revenue Service. About Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) Enter your name exactly as it appears in SSA or IRS records; even a minor spelling variation can keep the mismatch alive.
In Part II of the W-9 you sign under penalty of perjury to four certifications: that the TIN is correct, that you are not subject to backup withholding, that you are a U.S. person, and that any FATCA exemption code you entered is correct.6Internal Revenue Service. Form W-9, Request for Taxpayer Identification Number and Certification
One common mistake: the second certification is often misread. It refers only to whether the IRS has separately notified you of underreporting interest or dividend income. It does not refer to the TIN mismatch itself. If the IRS has told you you underreported such income, you must cross out that certification before signing. If not, leave it alone and sign normally.
Send the completed form to the payor that issued the B-Notice, not to the IRS. The payor will give you a mailing address or a secure upload portal. Don’t wait. If the payor doesn’t receive a corrected TIN, it must begin backup withholding no later than 30 business days after it received the mismatch notice from the IRS, and part of that clock has usually already run before the B-Notice reaches you.7Internal Revenue Service. Understanding Your CP2100 or CP2100A Notice
Responding to a Second B-Notice
With a second notice, the payor is legally prohibited from accepting a W-9 as sufficient. You need official validation from the SSA or IRS to go with it.3Internal Revenue Service. Backup Withholding “B” Program
If your TIN is a Social Security Number, go to your local SSA office and request a Social Security Number Printout. This replaced the old Form SSA-7028 verification process. Each person can request one free copy, and it is acceptable TIN validation for backup withholding purposes under Section 3406.8Internal Revenue Service. Announcement 2010-41: Social Security Number Validation Following Receipt of Second B Notice Give a copy to the payor along with your completed W-9.
If the account uses an EIN, contact the IRS and request Letter 147C, which confirms the entity name and EIN on file. It serves the same validation role for business entities.3Internal Revenue Service. Backup Withholding “B” Program
Without one of these documents, the payor must keep withholding. There is no workaround. The dual-document requirement exists because a W-9 already failed to resolve the issue once.
When Withholding Actually Stops
Submitting a valid correction does not stop withholding on the spot. Under Section 3406, the payor must stop withholding no later than 30 calendar days after receiving the corrected TIN.7Internal Revenue Service. Understanding Your CP2100 or CP2100A Notice The statute allows a shorter grace period, but most institutions use the full 30 days to process paperwork.9Office of the Law Revision Counsel. 26 U.S.C. 3406 – Backup Withholding Payments issued during that window will still have 24% withheld.
Getting the Withheld Money Back
Backup withholding is not a penalty. It is a prepayment of your federal income tax, and you claim credit for it on your annual return. The payor reports the withheld amount on the relevant Form 1099 (1099-DIV for dividends, 1099-INT for interest, and so on). On your Form 1040, report it as federal income tax withheld.10Internal Revenue Service. Topic No. 307, Backup Withholding If the amount withheld exceeds your actual tax liability, the difference comes back as a refund.
If the account belongs to a partnership or S corporation, the individual partners or shareholders claim their respective shares of the withholding on their own returns. The entity itself cannot claim the refund.10Internal Revenue Service. Topic No. 307, Backup Withholding
What Happens If You Ignore the Letter
The 24% withholding is the most visible consequence, but there is also a separate civil penalty. Under Section 6723, the IRS can impose a $50 penalty for each failure to comply with a specified information reporting requirement, which includes the obligation to furnish a correct TIN. The total for all such failures in a single calendar year is capped at $100,000, and the $50 figure is not adjusted for inflation.11Office of the Law Revision Counsel. 26 U.S. Code 6723 – Failure to Comply With Other Information Reporting Requirements12Internal Revenue Service. IRM 20.1.7 – Information Return Penalties
The $50 applies per failure. If the same incorrect TIN sits on accounts at several institutions, the penalties stack. Many financial institutions also have internal policies that let them restrict trading, freeze withdrawals, or eventually close accounts that remain out of compliance.
Who Is Exempt
Not every account holder is subject to backup withholding, even with a TIN mismatch. Exempt categories include corporations, tax-exempt organizations under Section 501(a), government entities, registered securities dealers, real estate investment trusts, and financial institutions. Individuals and sole proprietors generally are not exempt.1Internal Revenue Service. Backup Withholding If your entity qualifies, enter the appropriate exempt payee code on line 4 of the W-9. The exemption only covers certain payment types — corporations, for instance, are exempt on dividends and interest but not on payment card or third-party network settlements. Claiming an exemption you don’t actually qualify for makes the problem worse, not better.