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In the IRS’s own words · not reviewed by VALID
CP540 notice explained, in the IRS’s own words
You’re receiving this notice because you may be subject to backup withholding. This can occur if you haven’t filed Form 1040, U.S. Individual Income Tax Return, to report interest or dividend income and pay any taxes owed on that income.
Read the full CP540 page on irs.gov ↗
What this notice is about
You’re receiving this notice because you may be subject to backup withholding. This can occur if you haven’t filed Form 1040, U.S. Individual Income Tax Return, to report interest or dividend income and pay any taxes owed on that income.
What you need to do
- File Form 1040, if you haven’t done so already.
- Review your Form 1040 for any underreported interest or dividend income.
- File Form 1040-X, Amended U.S. Individual Tax Return, if you need to report additional interest or dividend income.
- Pay any taxes owed on the interest or dividend income reported on your Form 1040 or Form 1040-X.
You may want to
- Learn more about backup withholding.
- Review Publication 1335, Backup Withholding Questions and Answers PDF.
- Visit your personal tax account to view your payoff amount, payment history, or order transcripts.
What is backup withholding?
Backup withholding is a tax that applies mainly to interest and dividend income. It occurs when the IRS instructs payers to withhold a percentage of payments to ensure that taxes are collected.
What is the backup withholding rate?
The current rate is 24%, though this may change with tax laws.
How long will the payer continue backup withholding?
Backup withholding will continue until the IRS instructs the payer to stop or you provide written certification from the IRS stating you’re no longer subject to backup withholding.
How do I report backup withholding when I file my taxes?
You would report backup withholding as you would with any other withholding on your return.
Tips for next year
- File your tax return timely. Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free.
- Report all interest and dividend income.
- Pay all taxes due.
What to do next
- Write down the date on the letter today.
- Look the number up on irs.gov yourself. Don’t trust a link or phone number from anyone else.
- If it says you owe money or proposes changes to your return, take it to a licensed CPA, EA or tax attorney before that date.
Not advice. Not a filing. Verify with a licensed professional. Rules change by year and facts.