To avoid receiving B Notices, it’s important to be proactive whenever you onboard a new non-employee.
What Is A “B Notice”?
A “B Notice” is part of the IRS’s Backup Withholding Program, which provides notices to payers (such as businesses) who file certain information returns with incorrect Taxpayer Identification Numbers (TINs), which includes Social Security Numbers (SSNs) and Employer Identification Numbers (EINs). These notices begin the backup withholding process.
“Backup withholding” means withholding income tax from independent contractors or other non-employees.
As a business owner, you receive the notice, but it is up to you to inform your independent contractor or other non-employee that they provided the wrong TIN number to you. The IRS cannot contact your contractor (the payee) because they have the wrong TIN number on file.
What To Do With A B Notice
When you inform the payee about this situation, you must do a few things:
- Send a copy of the B Notice to the payee and request that they fill out an updated W-9 form with their correct TIN and full name. It’s best if you provide them with the W-9 form.
- Begin withholding taxes immediately at the rate of 24% if:
- the IRS says the taxpayer ID is missing.
- you cannot find the payee.
- the payee refuses or fails to provide a TIN.
- the TIN is obviously incorrect (e.g. it’s not 9 digits).
- Double-check that the new W-9 form has a different TIN than the old form.
At this point, the payee should send the W-9 to the IRS.
If you receive a second B Notice, continue withholding income taxes. The payee is responsible for resolving the issue with the IRS directly.
The IRS will inform you when the payee’s TIN has been corrected. At that point, you can stop withholding income taxes.
What To Do After the TIN Is Updated
After the matter is resolved, you need to pay the withheld taxes to the IRS, report them to the IRS using Form 945, and include the backup withholding information on the payee’s 1099-MISC during next tax season. Learn more from the IRS at this link.
How To Avoid B Notices in the Future
With the return of Form 1099-NEC, it’s even more important to check the names and TINs of your independent contractors and other non-employees. If a contractor shares an incorrect TIN or does not provide you with one at all, you will receive a B Notice for each 1099 form that is incorrect.
To avoid receiving B Notices in the future, it’s important to check that each non-employee’s TIN matches their name right after onboarding them and before you input their information in your system. By checking the TIN right away, you likely have more time to resolve any issues before tax season starts.
Bulk TIN Checking is the best way to avoid B Notices. Learn more about eFile360’s TIN Checking services at this link.