If a payee doesn’t give you a correct taxpayer identification number (TIN), or the IRS notifies you that the TIN is wrong, you must withhold a flat 24% from reportable payments and deposit it with the IRS (IRC §3406). The withholding is reported on the payee’s 1099 and on Form 945.
Why it matters
If you should have withheld and didn’t, the business can be liable for the tax. A W-9 on file before the first payment avoids the problem entirely.
Worked example
Vendor C has no TIN on file and is paid $1,000: Dr Accounts Payable $1,000 / Cr Cash $760 / Cr Backup Withholding Payable $240. Box 4 of their 1099 reports $240 regardless of the reporting threshold (illustrative).
Common mistakes
- Paying first and chasing the W-9 later.
- Withholding but forgetting to deposit and file Form 945.
How os.construction handles it
In the accounting preview, a vendor without a valid TIN is flagged, backup withholding is calculated on payment and posted to its own liability account, and the W-9 hold blocks payment until resolved. CP2100 B notices start withholding 30 business days after the notice date, an IRS TIN Matching mismatch puts the vendor on hold, and the Form 945 report totals the year’s withholding and deposits per entity. See Accounts payable.