When does a landlord have to withhold 24% from a contractor's pay?
When you must report a payment to a contractor on Form 1099-NEC and the contractor does not give you a correct taxpayer identification number, or the IRS tells you the number they gave is wrong, you have to withhold federal income tax at 24% from payments and send it to the IRS. This is called backup withholding. The simple way to never face it is to get a signed Form W-9 before the first payment.
What backup withholding is
Backup withholding is the IRS's safety net for income that might otherwise go unreported. If a payer cannot match a payee to a valid taxpayer ID, the payer holds back part of the pay. The rate is 24%, set by statute, and the payer deposits it with the IRS on the payee's behalf. The payee gets credit for it on their own tax return.
IRS Topic 307 lists the triggers: the payee fails to give a TIN, the payee gives an obviously wrong TIN, or the IRS notifies the payer that the number on file does not match the name. Whether it applies to you depends on whether your payments are reportable on a Form 1099 in the first place; see the related post on 1099-NEC for rental contractors.
The situations that trigger it
| Situation | What you do |
|---|---|
| A reportable payee refuses to give a W-9 or leaves the TIN blank | Withhold 24% from payments until they provide a correct, signed form. |
| The payee gives a TIN that is clearly wrong, such as the wrong number of digits | Treat it as missing and withhold. |
| You get an IRS notice (a CP2100 or CP2100A) that a name and TIN do not match | Send the first B notice and a blank W-9 to the payee. If they do not answer in time, start withholding. A second B notice within three calendar years requires the payee to get a validation from the Social Security Administration or the IRS instead of a new W-9. |
| The payee is a corporation or is on the exempt list of the W-9 instructions | Usually no 1099-NEC and no backup withholding. Ask your tax preparer if you are unsure. |
The exact deadlines and the text of the notices are in IRS Publication 1281, which is the place to look when you get a CP2100.
How it works when you do have to do it
- Pay the contractor the amount owed minus 24%. Keep the amount you withheld in a separate record.
- Deposit the withheld tax with the IRS. Backup withholding on nonpayroll payments is reported on Form 945, and you deposit it on the schedule that form's instructions give.
- Report the payment and the amount withheld on Form 1099-NEC, with the withholding in the box for federal income tax withheld.
- Give the contractor their copy by the deadline, and keep your records.
- Stop withholding when the payee gives a correct, signed W-9.
Example a made-up contractor will not give a W-9 and you owe $2,500 for a roof repair. You pay $2,500 less 24%, which is $600 withheld, so the contractor gets $1,900. You deposit the $600 with the IRS and report $2,500 paid with $600 withheld.
How to make sure it never happens to you
- Get a signed W-9 before the first payment and before you approve a job.
- Do not accept a W-9 with a missing name, a blank TIN, or an unsigned box.
- Check the name and TIN against the IRS's matching service if you are able to register for it; see the post on TIN matching.
- Keep the W-9 for as long as you pay the person, and ask for a new one when their name, status or number changes.
This is general information, not tax advice. Your rental activity, entity type and the contractor's type decide whether 1099 reporting and backup withholding apply. Ask your CPA to confirm the setup once.
Where DoorKeeping helps
DoorKeeping can hold a helper's or contractor's W-9 and tax ID, encrypted, with only the last four digits shown, and its 1099-NEC report is built from the books. DoorKeeping does not file 1099s or withhold taxes for you. Ask your preparer to confirm the setup.
Sources
- IRS, Topic no. 307, Backup withholding, read Oct 30, 2026
- IRS, Publication 1281, Backup Withholding for Missing and Incorrect Name/TIN(s), read Oct 30, 2026
- IRS, Instructions for the Requester of Form W-9, read Oct 30, 2026
Questions
- What is the backup withholding rate?
- 24 percent of the reportable payment, held back and sent to the IRS until the payee gives a correct taxpayer ID.
- Do I withhold if I paid a contractor before I got the W-9?
- Backup withholding applies to payments made after the trigger. Get the W-9 now and ask your preparer how to handle earlier payments.
- Do I have to backup withhold on payments to a company?
- Most payments to corporations are not reportable on a 1099-NEC, so backup withholding usually does not apply. Check the W-9 and ask your preparer for exceptions.