If you file 1099s, you may receive a letter from the IRS called a Notice CP-2100, which is typically sent in late fall. These notices alert you to possible issues with 1099s you’ve filed. The reason you would get one of these letters is if the IRS was unable to match the name/TIN combination on one or more of the 1099s you filed. It will tell you the steps to take to follow up and, if the matching error is not corrected, you’ll need to start backup withholding at 28%.
A variety of things can cause the IRS to have trouble matching a name/TIN combination, such as:
- The IRS misreading the name or TIN you provided. If the TIN on the CP-2100 does not match the TIN on the 1099 you filed, you don’t need to do anything.
- A sole proprietor or LLC who filled out a W-9 using an EIN but filed a tax return using his/her Social Security Number.
- A sole proprietor using a separate business name. He/she should fill out a W-9, and you should file a 1099, using the individual’s name on the first line, followed by the DBA, or “doing business as” name.
If the TIN on the CP-2100 matches the TIN on the 1099 you filed, send a B Notice to the vendor, along with a new W-9 for him/her to fill out. If the TIN and name on the new W-9 matches the 1099 you filed, you don’t need to do anything else, but you should keep both W-9s on file to show that you confirmed the vendor’s TIN and name. If the TIN and/or name on the new W-9 is different than what you had in your records, file a new 1099 with the same information as you originally filed, use a dollar amount of $0 and mark the box showing that the 1099 has been corrected. Then, issue another 1099 using the corrected name and/or TIN and the dollar amount you paid in the relevant year.
If you send a B Notice to a vendor and he/she does not respond with a new W-9 within 30 days of the date of the CP2100, start backup withholding of 28% of any payments you make to the vendor. When you file 1099s for the current year, report as income the gross amount you pay the vendor, and mark the amount you withheld in Box 4. For instance if the vendor invoices you for $1,000, you would withhold $280, send $720 to the vendor and report $1,000 of income on the vendor’s 1099.
If you receive a second CP-2100 for the same vendor within 3 years, send another B Notice but do not include a W-9. The vendor must send you either a copy of his/her Social Security Card or, if the vendor uses an EIN, the vendor must have the IRS validate the EIN on a Letter 147C. Start back-up withholding if you don’t receive the Social Security Card or Letter 147C within 30 days of the second B Notice and continue withholding until you receive the validation.