What is Backup Withholding?

Backup withholding is a federal tax that financial institutions like SoFi must withhold from your account(s) under these circumstances:

Certification Failure: If you fail to provide and/or certify your name and tax ID number as per IRS requirements before receiving payments like dividends or interest, backup withholding applies. You’ll have to certify your tax status when you open certain SoFi accounts or when you log into the SoFi app or website.

B-Notice: The IRS may flag an inconsistency between a name and tax ID on a Form 1099. If SoFi gets a B-Notice, we'll ask you for a new W9 certification or documentation, such as a social security card copy, to correct the information. Backup withholding will be applied until the necessary information is provided and certification is completed.

C-Notice: This notice is sent by the IRS when a taxpayer underreports dividends/interest or misses filing a required return. If you received this notice, you will need to indicate this when confirming and submitting your W-9 tax form.

Is backup withholding common?
No, backup withholding is not common. It is a type of tax withholding that only applies to certain types of income, such as dividends and interest, when a taxpayer provides incorrect or incomplete tax information.

What else do I need to know about backup withholding?
The current backup withholding rate stands at 24%. It's reported on a 1099 Form as federal tax withheld. Once it’s withheld, it can't be reversed. However, promptly addressing issues after a B-Notice or C-Notice can prevent future withholding. If you've been charged backup withholding, you will need the 1099 Form to complete your federal income tax return.

For more information on backup withholding, please review the W9 form on the IRS’s website at irs.gov/pub/irs-pdf/fw9.pdf.