An IRS 6042(c) letter isn’t actually from the IRS. It’s a “B-Notice” your bank, brokerage, or other payor is required to send you because the name and Taxpayer Identification Number on your account don’t match what the IRS or Social Security Administration has on file. If you don’t correct the mismatch, the payor must start withholding 24% of your future dividends, interest, and other reportable payments and send that money to the IRS.1Internal Revenue Service. Backup Withholding Fixing it is straightforward, but the steps depend on whether this is the first notice you’ve received or the second.
Why You Got the Letter
Section 6042 of the Internal Revenue Code requires anyone paying $10 or more in dividends during a calendar year to report those payments to the IRS with the recipient’s name and TIN.2Office of the Law Revision Counsel. 26 U.S. Code 6042 – Returns Regarding Payments of Dividends and Corporate Earnings and Profits When the IRS runs those filings against its records and finds a name-TIN combination that doesn’t match, it sends the payor a CP2100 or CP2100A notice listing every mismatched account.3Internal Revenue Service. Understanding Your CP2100 or CP2100A Notice The payor is then required to contact each affected customer. That’s the letter in your hand.
The usual causes are ordinary: a transposed digit in your Social Security Number, a name change after marriage that never made it to the SSA, or a data-entry slip when the account was opened. Whatever the cause, the IRS can’t tie the reported income to a specific taxpayer, and the gap has to be closed.
First Notice or Second Notice
Look at the letter to see whether the payor has flagged this as a first or second B-Notice. The two require very different responses.
A first B-Notice means the payor received its first CP2100 or CP2100A listing your account. You can resolve it by returning a completed Form W-9 with the correct name and TIN.4Internal Revenue Service. Backup Withholding “B” Program
A second B-Notice means the same account was flagged again within three years. A W-9 by itself will not fix it. You have to obtain independent verification of your TIN directly from the SSA or IRS and provide that to the payor.4Internal Revenue Service. Backup Withholding “B” Program
Responding to a First B-Notice
Before filling anything out, confirm your correct TIN against an official source: your physical Social Security card, a recent IRS notice, or, for a business, the original EIN assignment letter. Checking against a primary document is what keeps you from resubmitting the same wrong digit.
U.S. persons complete Form W-9, Request for Taxpayer Identification Number and Certification.5Internal Revenue Service. About Form W-9, Request for Taxpayer Identification Number and Certification Non-resident aliens and foreign entities use the appropriate W-8 instead.6Internal Revenue Service. About Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) Enter your name exactly as it appears in SSA or IRS records. A minor spelling variation is enough to keep the mismatch alive.
Part II of the W-9 contains four certifications you sign under penalty of perjury:7Internal Revenue Service. Form W-9, Request for Taxpayer Identification Number and Certification that the TIN is correct, that you are not subject to backup withholding, that you are a U.S. person, and that any FATCA exemption code you entered is correct.
Watch the second certification. It’s about whether the IRS has separately notified you of underreporting interest or dividends. It is not about the TIN mismatch. People receiving a B-Notice often assume they should cross it out because something is obviously wrong; unless the IRS has actually notified you of underreporting, leave it alone and sign normally.
Send the completed W-9 back to the payor that sent you the letter, not to the IRS. Use the mailing address or upload portal the payor provided. If the corrected TIN doesn’t arrive, the payor must begin backup withholding no later than 30 business days after it received the CP2100 or CP2100A from the IRS.3Internal Revenue Service. Understanding Your CP2100 or CP2100A Notice Part of that clock has usually already run by the time the notice reaches you, so don’t sit on it.
Responding to a Second B-Notice
On a second notice, the payor is legally prohibited from relying on your self-certified W-9. You need official validation of your TIN.4Internal Revenue Service. Backup Withholding “B” Program
If your TIN is a Social Security Number, go to your local SSA office and request a Social Security Number Printout. That printout replaced the old Form SSA-7028 verification, and each individual can request one free copy. It’s accepted as TIN validation for backup withholding purposes under Section 3406.8Internal Revenue Service. Announcement 2010-41: Social Security Number Validation Following Receipt of Second B Notice Provide a copy to the payor along with your completed W-9.
If the account uses an EIN, contact the IRS and request Letter 147C, which confirms the entity name and EIN on file. It plays the same role as the SSA printout for business accounts.4Internal Revenue Service. Backup Withholding “B” Program
Without one of these validation documents, the payor has to keep withholding. There is no workaround. The dual-document requirement exists because a plain W-9 already failed once.
When Withholding Starts and Stops
Once you send in a corrected TIN, withholding does not stop instantly. Under Section 3406, the payor has up to 30 calendar days after receiving the corrected TIN before it must stop withholding.3Internal Revenue Service. Understanding Your CP2100 or CP2100A Notice The statute lets payors elect a shorter grace period, but most financial institutions use the full 30 days.9Office of the Law Revision Counsel. 26 U.S.C. 3406 – Backup Withholding Any amounts withheld during that window aren’t lost. They’re credited to you at the IRS.
Getting the Withheld Money Back
Backup withholding is not a penalty. It’s a tax payment made on your behalf, and you claim credit for it when you file. The payor reports the withheld amount on the relevant Form 1099 (1099-DIV for dividends, 1099-INT for interest, and so on), and you report it as federal income tax withheld on your Form 1040. If the 24% withheld is more than your actual tax for the year, the excess comes back as a refund. Partners and S corporation shareholders claim their respective shares of the withholding on their own returns; the entity itself cannot claim the refund.10Internal Revenue Service. Topic No. 307, Backup Withholding
What Ignoring the Letter Costs
The 24% withholding is the biggest and most immediate hit, but there’s also a direct penalty for failing to furnish a correct TIN. Under Section 6723, the IRS can impose $50 for each failure, up to $100,000 in a calendar year.11Office of the Law Revision Counsel. 26 U.S. Code 6723 – Failure to Comply With Other Information Reporting Requirements That $50 is not adjusted for inflation.12Internal Revenue Service. IRM 20.1.7 – Information Return Penalties If the same TIN error appears at five institutions, that’s five separate failures.
Financial institutions also tend to have internal policies allowing them to restrict trading, freeze withdrawals, or close accounts that stay out of compliance. Payors face their own information-return penalties for the mismatch, which gives them a strong incentive to push the issue rather than let it drift.
Who Isn’t Subject to Backup Withholding
Not everyone who gets a B-Notice ends up with 24% withheld. Certain entities are exempt from backup withholding on payments like dividends and interest even when a TIN mismatch exists. The common exempt categories include corporations, tax-exempt organizations under Section 501(a), government entities, registered securities dealers, real estate investment trusts, and financial institutions. Individuals and sole proprietors are generally not exempt.1Internal Revenue Service. Backup Withholding
If your entity qualifies, enter the appropriate exempt payee code on line 4 of the W-9. The exemption only covers certain payment types, though. Corporations, for example, are exempt on dividends and interest but not on payment card or third-party network settlements. Claiming an exemption you don’t qualify for makes the problem worse, not better.