CP2100 and backup withholding: what payers and payees should know
A CP2100 or CP2100A goes to payers, not payees, listing information returns with missing or incorrect TINs. The payer then sends affected payees a "B" notice. Payees can usually stop backup withholding by giving a properly completed, signed Form W-9.
Who actually receives a CP2100
This notice confuses people because it is not addressed to the person most affected. The IRS sends CP2100 and CP2100A to payers, such as a business that paid a contractor, which filed information returns with a missing or incorrect taxpayer identification number. CP2100 goes to payers with a larger number of such returns, and CP2100A goes to those with fewer; the IRS page says the content is the same.
If you are a freelancer or contractor and you are reading this because a client mentioned a CP2100, you may never see the IRS notice yourself. What you are likely to see is a letter from the client, called a "B" notice.
How the B notices work
The IRS describes a two-step program. The first time a payee's name and TIN appear on a CP2100 list, the payer sends a First "B" Notice. If that payee appears again within three years, the payer sends a Second "B" Notice. The payer sends these, not the IRS, and the IRS page says payees receive no IRS notice before withholding starts.
What backup withholding is
Backup withholding means the payer holds back a flat share of reportable payments and sends it to the IRS on your behalf. The IRS describes it as applying when a payee has not properly provided a TIN, or when the IRS notifies the payer that the TIN is wrong and the payee does not certify it. The rate is set by law and can change, so check the IRS page for the current rate.
The money withheld is not a penalty. The IRS page says the amount can be claimed as a credit on your income tax return, so it is applied to your tax when you file.
How a payee stops it
The step depends on which notice you received:
- After a First "B" Notice: give the payer a properly completed, signed Form W-9, or an acceptable substitute, with your correct name and TIN.
- After a Second "B" Notice: the W-9 is not enough. The IRS page says you provide a copy of your Social Security card or an IRS Letter 147C, which is a letter confirming your name and number.
- In either case, send the paper to the payer named on the notice and keep a copy and proof of delivery.
Common causes of a mismatch
Mismatches are often ordinary. A name changed after a marriage, a business name was used where an individual name belongs, two digits were swapped when a form was typed up, or a sole proprietor gave an employer number where a Social Security number was expected. Before you reply, look at what you gave the payer originally and compare it to your Social Security card or your IRS records.
If you are the payer
Payers should read their own CP2100 for the list of affected payees and follow the IRS B program page for timing of the notices and the reporting of withheld amounts. A payer who is unsure what to do should consider asking a tax professional, because the obligations belong to the payer.
A short example
A photographer takes on a new client and writes her business name on the W-9 but her personal Social Security number, which does not match IRS records for the business name. Months later the client sends her a First "B" Notice and begins withholding. She completes a fresh W-9 with her individual name and the right number, sends it back, and keeps a copy. IRS Audit Defense Pro is software that helps you organize your facts and draft a response letter you review and send yourself; it is not a law firm, CPA or enrolled agent. If a payer disputes what you sent, it can help you put the dates and documents into a clear letter.
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Start your response letterFrequently asked questions
I am a payee. Will the IRS send me a CP2100?
No. The IRS page says the notice goes to payers. You are more likely to receive a First or Second "B" Notice from the payer.
How do I stop backup withholding?
After a First "B" Notice, give the payer a properly completed, signed Form W-9. After a Second "B" Notice, provide a copy of your Social Security card or an IRS Letter 147C.
Is the withheld money gone?
The IRS page says withheld amounts can be claimed as a credit on your income tax return.
What is the withholding rate?
It is a flat rate set by law that can change. See the IRS independent contractor page for the current rate.
Do I need to call the IRS?
Usually not, as the process runs through the payer. Follow the instructions on the B notice you received.