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Woman: The term backup withholding describes the tax withheld from a payment to a vendor for certain goods or services reportable on a Form 1099.

It could be for rents, royalties, medical and health care payments, gross proceeds to attorneys, and other types of income.

Currently, the rate for backup withholding is set at 28% of each payment.

Payors are obligated to "know who they are paying" and are required to collect the legal name and taxpayer identification number, or TIN from vendors they pay.

A common reason for backup withholding is when a payor requests a payee´s name and TIN, and the payee doesn´t provide them or provides incorrect information.

Ultimately, the IRS records and form 1099 detail will not match.

When the payor issues Form 1099 for payments to that payee the payor is notified by the IRS that the name and TIN listed on the form does not match the name and TIN recorded at the IRS.

The IRS notifies the payor on a letter called a CP2100 Notice or CP2100A for small payors with less than 50 incorrectly filed Form 1099s.

To help avoid these types of errors and notices, the IRS offers a free program for payors to verify that names and TINs match IRS records when a payee first provides this information to you.

This program is called the "IRS TIN Matching Program".

You can access and learn about this program on IRS.gov and watch our video, "Taxpayer Identification Number (TIN) Matching Program." The CP2100 Notice lists all the Forms 1099 IRS received with incorrect names and/or TINs.

As a payor, you should first check your records to ensure the IRS listed name and TIN on the Form 1099 matches the Information the payee gave you.

If the Form contained the same name and TIN as originally provided by the payee, then you, as the payor, must issue the payee one of two "B" Notices which are provided in the IRS Publication 1281.

You send the First "B" Notice if this is your first contact with the payee to clear up the discrepancy. You do this by sending an accompanying Form W-9, Request for Taxpayer Identification Number and Certification and Instructions, for the payee to complete, sign and return return to you, "certifying" under penalties of perjury that the name and number is correct.

If the payee doesn´t send a completed Form W-9 within 30 days, you must initiate backup withholding until you receive the completed Form W-9.

Use the Second "B" Notice if the IRS notifies you in a subsequent year of a name/TIN mismatch for the same payee you already contacted with a First "B" Notice.

This Second "B" Notice requires the payee to obtain a validation letter from the IRS or current SSA Card displaying their correct name and identification number. The Second "B" Notice includes instructions for the payee to follow so they can satisfy the requirements.

You must send the Second B Notice within 15 business days of receiving the CP2100 notice from the IRS.

Apply backup withholding for all payments to this payee beginning 30 business days after the date you sent the Second "B" Notice and continue to back up withhold until the payee provides you with a validation letter from the IRS or current SS Card.

Show any backup withholding you withheld from payments on the Form 1099 as Federal Income Tax Withheld along with the gross amount of payments paid as Income. The payee reports the amount withheld on their annual tax return reducing their tax liability.

The IRS regulations state that if backup withholding is not performed, then you, as the payor, may become liable for tax amounts and penalties.

Let´s summarize the steps with an example.

You, as the payor, obtain services from a contractor.

Before services begin, the contractor gives you a Form W-9.

At the end of the calendar year you give the contractor a Form 1099.

The IRS sends you a CP2100A Notice that the name and TIN provided on the Form 1099 does not match IRS records.

You check your documents to ensure you properly recorded the name and TIN on the Form 1099.

If so, you issue the contractor the First "B" Notice with a Form W-9 and instructions.

The contractor returns the signed Form W-9 within 30 days.

At the end of calendar year, you provide the contractor a Form 1099 with the updated name and TIN provided on the new Form W-9.

The IRS sends you another CP2100A Notice that this same contractor´s name and TIN still do not match their records.

You again check that the error wasn´t in your completing the Form 1099.

If not, you issue the contractor the Second "B" Notice that instructs the contractor to obtain a current SS Card or Validation Letter from the IRS.

The contractor provides their IRS validation letter or current Social Security card within 30 days of issuing the Second "B" Notice.

If not, you must apply Backup Withholding to all payments to that contractor.

What happens when the IRS sends you a CP2100 Notice, you check your documents and determine the TIN you entered on the Form 1099 is incorrect?

If you reported the incorrect information or it changed after filing the return, correct your records and include the correct information on any future information returns you file.

Do not send a "B" Notice to the payee and Do not send the correction to the IRS All the information we´ve discussed is in the IRS Publication 1281, and Form W-9 Instructions. Find these and more resources at irs.gov.

Visit irsvideos.gov for our videos on Backup Withholding, when and why, the TIN Matching Program and Why File Form 1099-MISC.

Thanks for listening.