📝 Overview
Federal backup withholding (BWH) occurs when the IRS notices that the business information on your CardConnect merchant account does not match their records. This can result in a percentage of your payments being withheld by the federal government. This article explains what backup withholding is and how to resolve it in your DaySmart Payments account.
⚠️ Warning
If you have been sent this article, your account is currently in Federal Backup Withholding. This can mean your account has one of the following issues that need to be resolved:
Missing TIN - A Tax ID (SSN, EIN, or ITIN) was not provided to the payment processor.
Incorrect TIN - The Tax ID on file doesn't match what the IRS has on record
Underreported income - Interest or dividends were not reported on a federal tax return.
Missing certification - The required confirmation that you're not subject to backup withholding was not completed (typically via Form W-9)
⭐ How to Resolve: Update Your Business Information
To stop federal backup withholding, you will need to provide the correct information for your business to CardPointe. Below are the steps on how to do so.
1️⃣ Option 1: Expedited Update Via Commerce Control Center (Preferred)
Click the arrow to learn how to correct your information on the Commerce Control Center
Click the arrow to learn how to correct your information on the Commerce Control Center
💡Before getting started
To log in, you will need to enter the 10-digit Communication ID. This Communication ID is located in your mailed BWH notice. If you can't locate your notice, contact us, and we'll help get that to you - please have your MID ready for verification.
Once you have logged in, you will be prompted to fill out and submit IRS Form W-9 electronically. You will be able to specify an email address to receive a confirmation notice when the information is validated.
To submit a correction to your tax filing information online, navigate to Commerce Control Center (CCC) - https://www.businesstrack.com.
Instead of signing in, click Tax Information Update under the sign-in box.
The first screen provides background information on why accurate tax information is required and what happens if it isn't updated. Please note that there is important information here that outlines how you can receive confirmation that the update has been completed. Read carefully, then click Next.
Enter your 10-digit Communication ID, which can be found in your mailed BWH notice.
Complete the reCAPTCHA and click Continue.
Review the information on this screen and confirm it is correct.
Review the information provided on this screen. This will show the last 4 of your current TAX ID, the Current FILING name, and whether it is valid. Click Next
Enter the correct IRS Filing Name, TAX ID, and whether this is filed under a Social Security Number or Employer Identification Number. Click Next
Enter your name to certify that you agree to the update and that the information provided is correct.
Specify if you would like to be notified once the change has been made, then click "Update."
2️⃣ Option 2: Via your CardPointe Portal
Click the arrow to learn how to submit a ticket on the CardPointe Portal.
Click the arrow to learn how to submit a ticket on the CardPointe Portal.
If you are unable to use the Commerce Control Center, you may be able to update your information through CardPointe; however, this option is only available if your account has not yet been placed on backup withholding. View the article below for steps:
Once you have submitted the support ticket with CardPointe, please contact us and let us know the ticket was submitted so we can help ensure your information is updated.
💰 How to Retrieve Held Funds
When funds are withheld, they are sent directly to the IRS. You can recover these funds when you file your taxes for the year the withholding ended - any amount exceeding what you owe in taxes will be returned to you as a refund.
Example: If backup withholding stopped on 1/2/2022, funds would be recovered when filing your 2022 taxes in 2023.
To determine how much was withheld, look for the Federal Income Tax Withheld box on your 1099-K. This amount can be used when filing your taxes to show the IRS that funds are owed to you.
Please consult a tax professional for guidance on filing — DaySmart is unable to provide tax filing assistance.
❓ Frequently Asked Questions (FAQs)
What is IRS Backup Withholding?
Click the arrow to learn more about BWH.
Click the arrow to learn more about BWH.
Backup Withholding (BWH) is a program instituted by the Internal Revenue Service (IRS) where funds are withheld from a merchant as a result of failing to provide correct taxpayer information to their payment card processor. Typically, the amount of funds withheld is between 24-28% of each batch that the merchant submits.
Similar to income tax withholding on a paycheck, backup withholding is imposed by the IRS on certain types of investments and income. The Housing and Recovery Act of 2008 included Amendment 6050W, Merchant Tax Reporting. This Amendment requires all merchant account providers to collect and verify TINs and report annual gross payments processed by debit or credit cards using Form 1099-K (Payment Card and Third Party Network Transactions) to the IRS and merchants.
🧠 Definition from the IRS on your W9:
What is backup withholding? Persons making certain payments to you
must, under certain conditions, withhold and pay to the IRS 24% of such
payments. This is called “backup withholding.” Payments that may be
subject to backup withholding, include interest, tax-exempt interest,
dividends, broker and barter exchange transactions, rents, royalties,
nonemployee pay, payments made in settlement of payment card, and
third-party network transactions, and certain payments from fishing boat
operators. Real estate transactions are not subject to backup
withholding.
What causes BWH?
Click the arrow to learn more about the causes of BWH.
Click the arrow to learn more about the causes of BWH.
Backup Withholding (BWH) occurs when a merchant fails to provide the correct taxpayer information to their processor. In short, the combination of the Legal Business Name and Tax Identification Number (Tax ID) does not receive a match when run against the records from the IRS.
A merchant can receive a mismatch from an incorrect Legal Name, Tax ID, or both.
Please note that the IRS Database is very case sensitive (ex. use of "&" instead of "and" can cause a mismatch and put a merchant onto BWH). As a result, it is important for merchants to know that it is crucial that they provide their information as accurately as possible.
Who is affected?
Click the arrow to learn who is affected.
Click the arrow to learn who is affected.
Merchants who have not provided a valid Taxpayer Identification Number (TIN), address, and name match to their merchant accounts provider.
You will not be subject to backup withholding on payments you receive if you give the requester your correct TIN, make the proper certifications, and report all your taxable interest and dividends on your tax return.
Why is this important?
Click the arrow to learn why this is important.
Click the arrow to learn why this is important.
Merchants with mismatched TINs could risk an automatic withholding of a percentage of their merchant account deposits. Merchants receive a 1099-K form each calendar year with the TIN information we have on file.
Additionally, some states may impose their own separate withholding penalty. This could result in a merchant not having access to the withheld funds until the following year when they file a tax return. If the state is withholding your funds, please contact your state.
Who is withholding the funds?
Click the arrow to learn who is withholding funds.
Click the arrow to learn who is withholding funds.
It is important to remember that Fiserv, DaySmart, and CardConnect are not the institutions withholding your funds.
Though CardConnect is the ones that fund you for processed transactions, the IRS has legal authority to withhold the allotted percentage from each batch when your account is on BWH.
💬 Contact Us
Questions or issues on Federal Backup Withholding? Contact us through our 💬 live chat option at the bottom right of this article or email us at ✉️ paymentsupport@daysmart.com