If your business issues certain types of 1099s or W-2s, you may get a notice from the IRS saying that the information you filed doesn’t match IRS records. You’ll either need to get correct information from the person listed in the notice or start backup withholding for them.
What responsibilities does a business have to report payments to the IRS?
When you pay someone more than a certain amount of money, you have to report those payments to the IRS if they’re over a certain amount. The purpose is to keep the person you’re paying from failing to report their income. If the IRS gets an information return from you but that person doesn’t report the income on their tax return, the IRS knows to audit them.
The minimum amounts to issue an information return and when you need to do it vary based on the form. The following forms commonly have information mismatches and errors that result in CP2100 or CP2000A notices.
- Form 1099-B, Proceeds from Broker and Barter Exchange Transactions
- Form 1099-DIV, Dividends and Distributions
- Form 1099-G, Certain Government Payments
- Form 1099-INT, Interest Income
- Form 1099-K, Payment Card and Third-Party Network Transactions
- Form 1099-MISC, Miscellaneous Income
- Form 1099-NEC, Nonemployee Compensation
- Form 1099-OID, Original Issue Discount
- Form 1099-PATR, Taxable Distributions Received from Cooperatives
- Form W-2G, Certain Gambling Winnings
What happens if you submit incorrect information to the IRS?
If you submit incorrect information to the IRS, they’re not able to match it to the person or their tax returns. That defeats the purpose of the information return.
In many cases, it’s not even your fault the information is incorrect. The person might have made a mistake filling out their W-4, W-9, or other tax form. Or, they might intentionally give you incorrect information to try to avoid having their income reported.
The IRS starts by trying to get the information corrected. If you can’t get corrected information, they’ll tell you to start withholding taxes on that person’s payments. If you continue to have problems submitting correct information returns or don’t withhold taxes when you should, it could lead to penalties.
What is backup withholding?
Backup withholding is withholding that’s only required in certain situations. (Compare to regular withholding that applies to everyone like W-2 jobs.)
Common situations where backup holding may apply are:
- You don’t have the payee’s tax information when you pay them.
- The payee didn’t certify their Tax Identification Number (i.e., they didn’t sign the legal language saying that it’s correct)
- The payee didn’t update their TIN upon your request when the IRS told you the TIN you have is incorrect
- The IRS tells you to start backup withholding because the payee didn’t report their income on their tax return.
For example, you normally don’t withhold taxes for a 1099-NEC contractor. Independent contractors normally pay their own taxes through estimated tax payments. The IRS may tell you to start withholding taxes if the identifying information on the 1099 you submitted for them is incorrect or if the contractor hasn’t been paying their taxes.
How do you make backup withholding payments?
If you withhheld backup withholding from one or more payees, file IRS Form 945.
Backup withholding deposits are due either monthly or semiweekly depending on the total taxes you withhold. If you withhold $50,000 or less, deposit monthly. If you withhold more than $50,000, deposit semiweekly.
How do you stop backup withholding?
Backup withholding ends when one of two conditions are met.
- For information matching issues, you can stop backup withholding when the payee properly submits corrected information.
- For nonpayment issues, backup withholding is required until the IRS decides otherwise. The IRS will send the payee a written notice when they are no longer subject to backup withholding. You can stop backup withholding when you receive a copy of these notice.
What if the payee gives you the same TIN the IRS says was incorrect?
The first time you get a notice that a TIN was incorrect, you can accept the payee’s certification even if they give you the same TIN the IRS says was incorrect.
If you get a second notice for the same name and TIN combination, you must get additional verification. For indidividuals, collect a Social Security card. For businesses, collect IRS Letter 147C.
What are notices CP2100 and CP2100A?
Notices CP2100 and CP2100A tell you that the 1099s you submitted contain incorrect Taxpayer Identification Numbers or other errors. The notice will include a list of the specific information returns and errors.
- You get a CP2100 notice if you had more than 50 forms with issues. You may receive a CD or DVD with the data if there is a large number of issues.
- You get a CP2011A notice if you had less than 50 forms with issues. This notice will almost always be on paper.
There is no other meaningful difference between the forms.
CP2100 and CP2100A notices go out in September or October for the previous tax filing season. For example, CP2100 notices go out in fall 2022 for 1099s due in January 2022 for tax returns filed in April 2022.
The IRS sends a reminder notice the following April. In the example above, that would be April 2023.
Why am I getting a CP2100 or CP2100A notice if I already fixed the errors?
These notices are automatic reminders based on what already happened. The IRS won’t know if you got corrected information until the next filing season.
If you had already identified the problem or are getting the second notice in April, you’re most likely fine if you already corrected the problem. Just double check your records.
If you do nothing at all, you could face additional penalties or an IRS certified letter.
What is a B Notice?
A B Notice is another term used for CP2100 or 2100A notices. It applies to notices about information problems.
The IRS covers these issues under the Backup Withholding “B” Program. The B is from the subsection of the Treasury regulation that covers this issue.
Verify TINs and Avoid Problems
If you want to avoid having to deal with backup withholding or getting notices from the IRS, you can verify a TIN before you do business with a payee. The IRS offers a free online TIN matching service.
When you receive a W-9 or other tax form from a new payee, you can enter their information in the TIN matching application to see if it’s valid.