Withhold 24% when a Form W-9 has no taxpayer number

• Before releasing a payment to a vendor whose Form W-9 lacks a taxpayer identification number, verify the specific withholding rate and start time. The backup withholding rate is 24% for reportable payments, according to Internal Revenue Service. You may be subject to backup withholding and the payer must withhold at a flat 24% rate when specific conditions are met, according to Internal Revenue Service.
• Report backup withholding on Form 945, Annual Return of Withheld Federal Income Tax, according to Internal Revenue Service. Check the vendor file for a valid number before processing the next invoice, alongside W-9 vendor review: 4 checks before payment. If the number is missing, apply the 24% rate to the payment amount.
• Record the date you requested the number in the vendor file.
• Do not wait for a second notice to start withholding in this specific scenario. The instruction is clear that the absence of a number triggers the immediate action.

The Instructions for the Requester of Form W-9 (03/2024) state that the backup withholding rate is 24% for reportable payments, according to Internal Revenue Service. This rate applies to the specific situation where a payee has not provided a valid taxpayer identification number. The instructions define the payer's ongoing obligation in this scenario. A payor must deduct, withhold, and deposit with IRS 24% of reportable payments made to that payee until the cause of the backup withholding is remedied, according to Internal Revenue Service. If the payee provides the correct TIN, backup withholding should end within 30 days of receiving the payee’s updated information, according to The Tax Adviser.

The firm bears financial risk if it fails to perform this duty. If you don’t collect backup withholding from affected payees as required, you may become liable for any uncollected amount, according to Internal Revenue Service. This liability attaches to the payer who failed to deduct and deposit the required funds. The obligation is not optional when the Form W-9 lacks a taxpayer identification number. The payer must calculate 24 percent of the reportable payment amount. The payer then deducts this amount from the payment to the vendor. The payer deposits the withheld amount with the IRS. This process repeats for every reportable payment made to that payee. The cycle ends only when the cause of the backup withholding is remedied.

Backup withholding begins immediately when the payer lacks the payee's taxpayer identification number. The payer must begin backup withholding on all reportable payments immediately if no TIN is provided to the payer or if the TIN is obviously incorrect, according to Internal Revenue Service. This obligation is triggered only where an information return must be filed and the payer is missing the payee TIN or has received notice the TIN they are reporting under is incorrect, according to The Tax Adviser. There is no waiting period between discovering the missing number and starting the withholding.

A second notice requirement applies when a payee is repeatedly listed on IRS notices. The payer must send the Second “B” Notice to a payee after the payee is listed on a CP2100 or CP2100A notice a second time within a three-year period, according to Internal Revenue Service. This specific trigger depends on the payee appearing on those particular IRS notices twice within the defined three-year window. It is distinct from the initial trigger, which relies solely on the missing or incorrect TIN at the time of payment.

The backup-withholding program described in Topic no. 307, Backup withholding states that you may be subject to backup withholding and the payer must withhold at a flat 24% rate when specific conditions are met, according to Internal Revenue Service. This 24 percent figure is the rate applied to reportable payments under the backup-withholding rules. The Instructions for the Requester of Form W-9 (03/2024) presents a separate sentence, according to Internal Revenue Service. That sentence states that if an account holder fails to provide its TIN, then the withholding rate is 30%, according to Internal Revenue Service.

The 24 percent rate is the flat rate for backup withholding as defined in the backup-withholding topic. The 30 percent rate is specified in the Form W-9 instructions for the specific case where an account holder fails to provide its TIN. The Instructions for the Requester of Form W-9 (03/2024) does not label the 30 percent figure as the backup-withholding rate; it presents it as the withholding rate for that specific failure to provide a TIN by an account holder. Conversely, Topic no. 307, Backup withholding identifies the 24 percent rate as the flat rate for backup withholding.

The backup withholding “B” program requires the payer to report the withheld tax on a specific annual return. According to Internal Revenue Service, you must report backup withholding on Form 945, Annual Return of Withheld Federal Income Tax. This form serves as the mechanism for the firm to account for the funds withheld from reportable payments when a payee’s taxpayer identification number is missing or incorrect. The reporting obligation is tied directly to the act of withholding; if you withhold the 24 percent rate on a payment, that amount must be reflected on this annual return.

The process does not end with the filing of the return. This 30-day window is the operational benchmark for your firm to stop withholding and resume normal payment processing. You must track the date you receive the corrected information to ensure you stop withholding within this timeframe.

The table below lists backup-withholding rules and rates from the publishers named in each row. Each row contains the publisher, the specific rule or rate they state, and the exact quote from their source. Use this table to verify the rate and reporting requirements before processing a payment where the taxpayer identification number is missing.

According to Internal Revenue Service, the backup withholding rate is 24% for reportable payments. The same source states that if an account holder fails to provide its TIN, the withholding rate is 30%. According to Internal Revenue Service, you may be subject to backup withholding and the payer must withhold at a flat 24% rate when the listed conditions apply. The Internal Revenue Service specifies that the payer must begin backup withholding on all reportable payments immediately if no TIN is provided to the payer or if the TIN is obviously incorrect. This same program page instructs to report backup withholding on Form 945, Annual Return of Withheld Federal Income Tax. According to The Tax Adviser, the backup withholding rate is currently 24% of the total payment to applicable payees.

Treat this walk-through as illustrative only. A payer opens a payee file and finds the taxpayer number line empty. The payer makes one reportable payment of 500 on that same day, with 0 days of delay. Withholding starts on that payment because no number was provided and an information return must be filed. The payer deducts the withheld part and deposits it. Later, the payee sends the corrected number. Backup withholding should end within 30 days of receiving that updated information. In this illustration the 30 days run from the day the update arrives, and a count of 10 days still inside that window means withholding is still on. Mark the payee file on the day the update arrives so the day count stays visible, and stop withholding when the count reaches 30. No firm, person, or product is named here.

Record the date you last asked for the taxpayer identification number on the payee file.

Check the payee file for the missing number and apply the 24 percent rate to the next reportable payment. Then walk through Payroll intake review against 4 source guides.

When withholding starts if no number is provided

Withholding begins immediately if no TIN is provided to the payer or if the TIN is obviously incorrect, according to Internal Revenue Service. The payer must begin backup withholding on all reportable payments at that time. There is no waiting period before the first payment is withheld.

What the 30 percent sentence says

If an account holder fails to provide its TIN, then the withholding rate is 30%, according to Internal Revenue Service.

What payment-network threshold the final regulations state

Third-party settlement organizations generally are not required to backup-withhold on payments settled through third-party payment networks unless the gross amount of reportable payment transactions to a payee exceeds $20,000 and the number of transactions exceeds 200, according to Journal of Accountancy. This threshold applies to TPSOs like PayPal or Venmo.