Tax Education

Backup Withholding on 1099-NEC

Box 4 Explained [2026 Guide]

What is Box 4?

24% federal tax withheld when TIN issues exist

Backup withholding (Box 4) is a 24% tax that businesses withhold from contractor payments when the contractor hasn't provided a valid TIN, or when the IRS notifies the payer of issues with the contractor's tax reporting.

See an amount in Box 4 of your 1099-NEC? This guide explains what backup withholding is, why it happened, and how to claim credit or stop it from continuing.

What Triggers Backup Withholding?

Payers must begin backup withholding when any of these occur:

Contractor didn't provide TIN

W-9 not submitted or TIN field left blank

IRS notified TIN is incorrect

B-Notice from IRS says name/TIN doesn't match

IRS notified contractor underreported

C-Notice: Contractor has history of not reporting income

Contractor didn't certify exempt status

Failed to certify they're not subject to backup withholding on W-9

The 24% Withholding Rate

Example Calculation:

Payment to contractor$5,000

Backup withholding (24%)-$1,200

Net payment to contractor$3,800

The payer reports $5,000 in Box 1 (total nonemployee compensation) and $1,200 in Box 4 (federal income tax withheld). The contractor received $3,800 but is taxed on the full $5,000.

How to Report Backup Withholding

For Payers (Businesses)

1.Enter withheld amount in 1099-NEC Box 4
2.File Form 945 with total backup withholding
3.Deposit withheld taxes per IRS schedule
4.Form 945 due January 31

For Recipients (Contractors)

1.Find amount in your 1099-NEC Box 4
2.Enter on Form 1040, Line 25b
3.It counts as tax already paid
4.Reduces tax owed or increases refund

The W-9 Connection

Form W-9 prevents backup withholding. When a contractor properly completes and signs a W-9, they provide:

Their correct TIN (SSN or EIN)
Certification that the TIN is correct
Certification they're not subject to backup withholding

Best practice: Always collect a W-9 before making the first payment to any contractor.

How to Stop Backup Withholding

If backup withholding is being applied to your payments, here's how to stop it:

Obtain your correct TIN

Get your Social Security card or EIN confirmation letter from IRS

Complete a new W-9

Fill out Form W-9 with the correct information

Certify your status

Sign Part II certifying you're not subject to backup withholding (if true)

Submit to payer

Give the corrected W-9 to the business that's withholding

Resolve IRS issues

If IRS sent a notice, resolve the underlying issue (file missing returns, etc.)

Understanding B-Notices and C-Notices

B-Notice (CP2100/CP2100A)

IRS found that the name and TIN you reported don't match their records.

Response: Contact the contractor for a corrected W-9. Begin backup withholding if not corrected within a reasonable time.

C-Notice

IRS determined the contractor underreported income (didn't report payments on their return).

Response: Begin backup withholding immediately. Continue until IRS notifies you to stop.

Need to Generate a 1099-NEC?

Create accurate 1099-NEC forms including Box 4 for backup withholding. Collect W-9s and generate forms in minutes.

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Frequently Asked Questions

What is backup withholding?

Backup withholding is a federal tax withholding of 24% that businesses must take from payments to contractors in certain situations. It's called 'backup' because it backs up the income tax system when the IRS can't properly track income to a taxpayer.

What triggers backup withholding on 1099-NEC?

Backup withholding is triggered when: (1) The contractor didn't provide a TIN (SSN or EIN), (2) The IRS notifies you the TIN is incorrect (B-Notice), (3) The IRS says the contractor underreported income (C-Notice), or (4) The contractor didn't properly certify on Form W-9.

What is the backup withholding rate?

The current backup withholding rate is 24% of the payment. So if you pay a contractor $1,000 and backup withholding applies, you withhold $240 and pay them $760. You then remit the $240 to the IRS.

How do I report backup withholding as a payer?

Enter the amount withheld in Box 4 of Form 1099-NEC. Report and pay the total backup withholding to the IRS using Form 945 (Annual Return of Withheld Federal Income Tax). Form 945 is due January 31 of the following year.

How do contractors claim credit for backup withholding?

Contractors report backup withholding as federal income tax withheld on their Form 1040, line 25b. The amount appears in Box 4 of their 1099-NEC. It counts as a tax payment and reduces their tax owed (or increases their refund).

How do I stop backup withholding?

Provide the payer with a correct W-9 with your accurate TIN and sign the certification that you're not subject to backup withholding. If the IRS sent a notice, resolve the underlying issue (correct TIN mismatch, file missing returns, report missing income).

What is a B-Notice and C-Notice?

A B-Notice (CP2100/CP2100A) means the IRS found a TIN/name mismatch in your filing. A C-Notice means the IRS determined the payee underreported income. When you receive these, you must begin backup withholding on future payments to that contractor until resolved.

Is backup withholding the same as regular tax withholding?

No. Regular tax withholding (like on W-2 wages) is based on the employee's W-4 and varies by income and exemptions. Backup withholding is a flat 24% applied in specific situations when the IRS can't properly track income. It's not based on the recipient's tax situation.