If your bank is asking about backup withholding, it’s because federal law requires it to verify your taxpayer identification number and tax status before paying you interest, dividends, or other reportable income. Something on your account is missing, incomplete, or doesn’t line up with IRS records, and until it’s fixed the bank must withhold 24% of those payments and send that money to the IRS.1Internal Revenue Service. Topic No. 307 – Backup Withholding The obligation is on the bank, not a penalty aimed at you, and in most cases your response is what stops the withholding from ever starting.
Backup withholding exists because income like savings interest and stock dividends usually arrives in full, with no automatic tax taken out. When the IRS can’t confirm who the recipient is or has reason to think income isn’t being reported, it uses backup withholding as a catch-up mechanism.2Internal Revenue Service. Backup Withholding The 24% rate is flat and comes off the gross amount. Earn $100 in interest with backup withholding active, and $76 lands in your account.
Which Trigger Applies to You
Federal law recognizes exactly four situations that force a bank to begin backup withholding, and your letter is tied to one of them.2Internal Revenue Service. Backup Withholding Figuring out which one determines what you need to do.
- You never gave the bank a TIN. When you opened the account, your Social Security number or other taxpayer identification number wasn’t provided, so the bank can’t report your income to the IRS.
- Your name and TIN don’t match IRS records. The IRS runs a comparison and sends banks a notice (CP2100 or CP2100A) listing every account that failed the check.3Internal Revenue Service. Understanding Your CP2100 or CP2100A Notice
- You never certified your status. Interest- and dividend-earning accounts require you to certify under penalty of perjury that your TIN is right and that you’re not currently subject to backup withholding. That certification happens on Form W-9, and if you never signed one, the bank has to withhold.4Internal Revenue Service. Form W-9 (Rev. March 2024)
- The IRS ordered it because of underreported income. If you previously left interest or dividend income off a return, the IRS can direct your bank to start withholding.
The first three all have the same fix. The fourth is different, and the section below on underreporting explains why.
What a B-Notice From Your Bank Means
If your letter references a name/TIN mismatch, your bank is running the IRS “B” program. After the IRS sends the bank a CP2100 or CP2100A notice with your account on it, the bank sends you a First B Notice and a blank Form W-9. Fill out the W-9 with your correct name and TIN, return it, and the issue closes. If you don’t respond, the bank must begin withholding no later than 30 business days after it received the CP2100.3Internal Revenue Service. Understanding Your CP2100 or CP2100A Notice Once you turn in a corrected TIN, the bank has 30 calendar days to stop.
If the same mismatch shows up again within three years, you get a Second B Notice, and the fix is stricter. A new W-9 alone isn’t enough. You’ll need to send a copy of your Social Security card, or if you use an Employer Identification Number, a Letter 147C from the IRS confirming that your name and number match.5Internal Revenue Service. Backup Withholding “B” Program
Why the Mismatch Probably Happened
Most mismatches trace back to a name change that wasn’t updated everywhere. Marriage, divorce, or any legal name change updated with the bank but not the Social Security Administration (or the other way around) will fail the IRS comparison, because the IRS requires your name and SSN to agree with your Social Security card.6Internal Revenue Service. Name Changes and Social Security Number Matching Issues A typo when the account was opened is another common cause. Before you send a new W-9, pull out your Social Security card and confirm that the name you’re writing down matches it exactly.
If the IRS Flagged You for Underreporting
This trigger works differently. Before the IRS tells your bank anything, it sends you at least four notices over a minimum of 120 days about the underreported interest or dividends.1Internal Revenue Service. Topic No. 307 – Backup Withholding Only if none of them get a response does the IRS send you a CP 539 saying backup withholding is now active, and a separate CP 543 to your bank instructing it to begin withholding within 30 business days.7Internal Revenue Service. 5.19.3 Backup Withholding Program
Your bank cannot stop the withholding on its own here, and turning in a new W-9 won’t do it either, because the order came from the IRS. You have to resolve the underlying issue with the IRS first. That usually means showing the underreporting didn’t happen, filing the missing returns, or paying the tax owed with any penalties and interest. When the IRS is satisfied, it notifies both you and the bank that withholding should stop.
One wrinkle: if you sign a W-9 while an underreporting notice is active, you must cross out the certification line stating that you’re not subject to backup withholding. Your TIN certification stands, but you can’t certify exemption from withholding until the IRS clears you.4Internal Revenue Service. Form W-9 (Rev. March 2024)
How to Stop It
For the three ordinary triggers, the fix is a completed Form W-9 returned to your bank. The form asks for your name (as it appears on your Social Security card), your TIN, and a signature certifying four things under penalty of perjury: your TIN is correct, you’re not subject to backup withholding for underreporting, you’re a U.S. person, and any FATCA exemption code you entered is right.4Internal Revenue Service. Form W-9 (Rev. March 2024) Once the bank processes a valid W-9, the withholding obligation goes away.2Internal Revenue Service. Backup Withholding
The certification is legally binding, so check your entries before you sign. Most requests are routine, but perjury language means perjury language.
What Happens If You Ignore the Letter
The bank has no discretion. If it asked for a W-9 and never received one, it must begin withholding 24% from every reportable payment, and it will keep doing so indefinitely until you send the documentation. There’s no expiration on the obligation. Every month you wait is more money going to the Treasury instead of your account. Backup withholding also covers a broad set of payments beyond savings interest, including dividends, broker and barter exchange transactions, rents, and royalties reported on the 1099 series.1Internal Revenue Service. Topic No. 307 – Backup Withholding
Getting Withheld Money Back
Money taken through backup withholding isn’t lost. It’s credited to your IRS account like any other tax payment, and you claim it on your annual return. On Form 1040 it goes on Line 25b, and the amount comes from Box 4 of the 1099 your bank issues for the year.8Internal Revenue Service. 2025 Instructions for Form 1040 If the withheld amount exceeds what you actually owe, the IRS refunds the difference. For anyone whose effective tax rate sits well below 24%, that often means a refund.
The problem is timing. You won’t see the money again until you file and the IRS processes your return, which could be many months after the withholding started. That alone is reason to answer your bank’s request now rather than sort it out next April.