12 Oct October Blues: B Notices and Backup Withholding
Have you gotten yours? Not tricks or treats, nor a political surprise. The other October surprise: CP2100s!
Twice a year, in spring and fall, the Internal Revenue Service (IRS) sends out forms CP2100 and CP2100A. They address missing or incorrect taxpayer-identification numbers (TINs) on 1099 payment reporting. Whether you get a form 2100 or 2100A depends on the number of bad TINs. If you are a recipient, you must act. Your response depends on the particulars of each notice.
Here’s a quick refresher on what to do.
First, check the vendor TIN in the IRS notice against the TIN in your records. Are they different? Then an error was apparently made in the 1099 filing. Correct your records as necessary. You do not have to send a B-notice to the vendor, but ensure you report the vendor’s correct TIN next time.
However, if the TIN in the CP2100 matches what you have as the vendor’s TIN, the TIN is incorrect. In that case, you have 15 days to issue a “B Notice” (“B” for backup withholding) to the vendor. The B-notice explains that they need to send you a corrected TIN (stat!) or you will begin backup withholding.
If you do not receive a corrected TIN from the vendor within 30 days, you must begin backup withholding. (You may begin backup withholding immediately on receipt of the notice.)
Missing TINs, in addition to the obvious, also include “obviously incorrect” TINs according to the IRS (such as insufficient or too many digits, or a mix of letters and numbers). For these, begin backup withholding immediately. Do not send a B-notice, but solicit the vendor’s TIN before December 31st. This is your first annual TIN solicitation. If you do not receive a TIN, you must make a second TIN solicitation before December 31st of the following year. Documentation of solicitations is important to mitigate penalties.
First and Second B-notices
The B-notice asks the vendor to verify their name and TIN. If this is a first B-notice for a particular vendor, include a form W-9 or acceptable substitute for them to give you the correct TIN. Mark the envelope “Important Tax Information Enclosed.”
If this is a second B-notice within three years, meaning you’ve previously sent a first B-notice and the TIN is still incorrect, then do not include a W-9. Your notice should instruct the vendor to contact the IRS or the SSA (Social Security Administration) to obtain and provide you the validation of their TIN.
If the vendor fails to verify their TIN, or in the case of a second B-notice, obtain and provide IRS or SSA validation, you are required to backup withhold.
The backup withholding rate is 24 percent. That rate became effective January 1, 2018 (it used to be higher). Report the withholding by January 31 on IRS Form 945.
See IRS Publication 1281 for detailed information and B-notice templates. Then start using IRS TIN Matching to verify TINs before reporting payments on 1099.
To find out how VendorInfo helps clients collect vendor TINs, validates them via IRS TIN matching, and handles other important vendor information validation, contact us.