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Informational

IRS CP542 Notice

Backup Withholding Stopped

The reversal notice. It confirms backup withholding has ended and tells you what to do if a payer didn't get the message.

What is CP542? CP542 tells you that you're no longer subject to backup withholding, and that the IRS has told your payers of interest, dividends, and patronage dividends to stop it.

What This Notice Means

CP542 tells you that you're no longer subject to backup withholding, and that the IRS has told your payers of interest, dividends, and patronage dividends to stop it.

This is the closing notice in the CP540/CP538/CP542 sequence on this site: CP540 is the trigger, CP538 is the escalation with a stated consequence, and CP542 is the confirmation that withholding has ended.

Why You Received This Notice

  • 1
    The IRS resolved whatever underreported or unpaid interest/dividend tax led to backup withholding, and states you're no longer subject to it.

Important Deadline

The IRS sets one date, tied to a specific task rather than a payment: if a payer of your interest or dividend income didn't receive the IRS notice to stop backup withholding, give them a copy of this notice by December 31.

What You Should Do

  • Make sure payers of your interest or dividend income received the IRS notice to stop backup withholding.
  • If a payer didn't receive it, give them a copy of this notice by December 31.
  • Keep this notice for your records.

What NOT to Do

  • Do NOT assume every payer was notified automatically. The IRS puts the follow-up on you if one wasn't.

Frequently Asked Questions

What is backup withholding?
The IRS states: "It's a withholding (deduction) from certain payments (mostly interest and dividends) that payers must take when instructed by us."
What is the backup withholding rate?
The IRS states on its CP542 page (irs.gov, retrieved 2026-08-24): "Currently, it's 24%. It can increase or decrease with tax laws." Note: CP538 in this same notice family states a 28% rate on its own IRS page, also retrieved 2026-08-24. TRC did not resolve that discrepancy between the IRS's own pages -- use the rate printed on the notice you actually received, and confirm the current rate directly with the IRS.
How long will the payer continue backup withholding?
The IRS states: "Until we instruct them to stop, or until you give them written certification from us that you're no longer subject to backup withholding."

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Related Notices

CP540You May Be Subject to Backup WithholdingCP538Second Notice — Backup Withholding on Interest or Dividend Income

Recommended Next Steps

  • Check with any payer who may still be withholding to confirm they received notice to stop.

What this page does not say

  • This page's own source states the current backup withholding rate as 24% (retrieved 2026-08-24); CP538 in this same family states 28% on its own IRS page (also retrieved 2026-08-24). Both figures are quoted verbatim from IRS's live pages -- this site has not resolved the discrepancy and states each rate only as its own source presents it.

Sources and last reviewed

Sourced to primary IRS materials and editorially reviewed on 2026-08-24. Not reviewed by a tax professional. Not tax advice. This page explains a notice in general terms and is not tax or legal advice about your situation. Always use the dates and instructions printed on the notice you actually received. Report a correction.