What Is Backup Withholding on a W-9: Triggers, B-Notices, and Refunds

Backup withholding on a W-9 is a flat 24% federal tax that a payer deducts from certain non-wage payments to you when your Form W-9 is missing, incorrect, or uncertified, or when the IRS has flagged you for underreported income. It isn’t a penalty and it isn’t an extra tax. It’s a prepayment of your regular federal income tax, and you claim it back as a credit when you file your return.¹

In practice, a $1,000 freelance payment subject to backup withholding means you receive $760 and the payer sends $240 to the IRS in your name. The rate comes from 26 U.S.C. § 3406, which pegs it to “the fourth lowest rate of tax applicable under section 1(c).” The One Big Beautiful Bill Act made the 24% rate permanent starting January 1, 2026.¹

What Triggers Backup Withholding

Four situations require a payer to start deducting 24% from what they send you. Three of them are avoidable at the W-9 stage.²

You didn’t give the payer a Taxpayer Identification Number, or the one you gave is obviously wrong (fewer than nine digits, contains letters). Withholding starts immediately with no grace period.
The IRS tells the payer your name and TIN don’t match its records. This begins the B-Notice process.
The IRS has notified the payer that you previously failed to report interest or dividend income.
You refused to certify on the W-9 that you’re not subject to backup withholding, or you failed to certify your TIN is correct.

The first trigger is by far the most common, and it’s the easiest to prevent: fill out the W-9 completely and accurately before the payer cuts your first check.

Which Payments It Applies To

Backup withholding does not apply to regular wages from an employer. Those are covered by ordinary payroll withholding. It applies to the kinds of income reported on 1099 forms:¹

Interest and dividends, including bank interest and stock dividends.
Nonemployee compensation, such as freelance fees, consulting payments, and commissions to independent contractors.
Rents and royalties.
Broker transactions, meaning proceeds from sales of stocks, bonds, and similar securities.
Payment card and third-party network settlements, subject to the $20,000 and 200-transaction threshold for third-party settlement organizations under the One Big Beautiful Bill Act.

Each payment type has its own reporting threshold, commonly $600 for nonemployee compensation and $10 for interest. Backup withholding only kicks in on payments that meet the reporting threshold for the relevant 1099.³

Filling Out the W-9 So It Doesn’t Happen

Form W-9 goes to the payer who requested it, never to the IRS. Errors on the form are the number-one reason people end up with backup withholding they didn’t need.⁴

Use your legal name exactly as it appears on your tax return, plus any business or DBA name if different. The mailing address you list is where the payer will send your year-end 1099. In Part I, enter your TIN: your Social Security Number if you’re an individual, or your Employer Identification Number if you’re a business entity. Sole proprietors with an EIN can use either number. For a single-member LLC that’s disregarded for tax purposes, enter the owner’s SSN or EIN rather than a separate number for the LLC.⁵

Part II is the certification, and it’s the part people rush. Your signature attests under penalty of perjury that your TIN is correct, that you’re not currently subject to backup withholding for underreported income (unless the IRS has told you otherwise), and that you’re a U.S. person. If the IRS has notified you that you are subject to backup withholding because of underreporting, cross out item 2 of the certification before you sign.⁵

Form W-9 is for U.S. persons only, including resident aliens. A foreign person cannot submit a W-9 and should provide the appropriate Form W-8 instead (most often W-8BEN for individuals or W-8BEN-E for entities). If the payer doesn’t receive either form, they generally have to presume you’re subject to withholding.⁶

If you’ve applied for a TIN but don’t have one yet, you can write “Applied For” on the W-9. For interest, dividend, and certain readily tradable instrument payments, that buys a 60-day window before backup withholding begins. The grace period doesn’t cover other payment types like freelance income.

The B-Notice Process and Deadlines

If the IRS finds a mismatch between the name and TIN a payer reported and its own records, it sends the payer a CP2100 or CP2100A notice. The payer then forwards a “First B-Notice” to you.⁷

You have 30 business days from when the payer receives the IRS notice to respond with a corrected W-9 before withholding starts. Once the payer receives your corrected, certified W-9, they must stop withholding within 30 days.⁸

If the same mismatch shows up a second time within three years, the payer sends a “Second B-Notice,” and the standard for stopping withholding goes up. A new W-9 alone won’t do it. You need to supply a copy of your Social Security card or an IRS Letter 147C verifying your name and Employer Identification Number.⁷

How to Stop Backup Withholding Once It’s Started

To stop the deductions, you have to fix whatever caused them. The route depends on the trigger:²

Missing or incorrect TIN: give the payer a new, signed W-9 with the correct number. Withholding stops within 30 days.
Name/TIN mismatch (B-Notice): respond within 30 business days with a certified W-9. For a Second B-Notice, add your Social Security card or IRS Letter 147C.
Underreported income: resolve the underreporting with the IRS and pay any amount owed. The IRS then notifies the payer to stop.
Missing tax returns: file the delinquent returns.

You cannot get a refund of already-withheld funds from the payer. The only way to recover that money is on your federal income tax return.

Getting the Money Back on Your Tax Return

At year end, the payer issues a Form 1099-NEC or 1099-MISC showing total income paid and total federal tax withheld in Box 4. Report the Box 4 amount on Form 1040, Line 25b, the same line used for other federal income tax withheld on 1099s and similar forms. The statute treats backup-withheld amounts the same as wages withheld by an employer for credit purposes, so it offsets your tax liability dollar for dollar.¹²

The 24% rate is often higher than what you’d actually owe once deductions and credits bring your effective rate down. Filing your return is the only way to reconcile the numbers, and any overpayment comes back to you as a refund.

Penalties for False Certification

Because you sign the W-9 under penalty of perjury, the certification line carries real consequences. A false statement on Form W-9 that results in no backup withholding carries a $500 civil penalty. Failing to furnish your correct TIN to a requester triggers a separate $50 penalty for each failure, unless you can show reasonable cause. Willfully falsifying information can lead to criminal prosecution, including fines and imprisonment.⁵

1
Office of the Law Revision Counsel. 26 USC 3406 – Backup Withholding
2
Internal Revenue Service. Backup Withholding
3
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025)
4
Internal Revenue Service. About Form W-9, Request for Taxpayer Identification Number and Certification
5
Internal Revenue Service. Form W-9 (Rev. March 2024) Request for Taxpayer Identification Number and Certification
6
Internal Revenue Service. Instructions for the Requester of Form W-9
7
Internal Revenue Service. Backup Withholding “B” Program
8
Internal Revenue Service. General Instructions for Certain Information Returns