Stripe Connect Backup Withholding: The 24% in QuickBooks

A platform pays a contractor, Dana, through Stripe Connect. Dana joins in April and never gives a taxpayer identification number. That month Dana finishes three jobs worth $4,000 in total. If the platform transfers the full $4,000 to Dana's connected account, it has just sent away $960 it was required to keep.

Under the IRS backup withholding rules, the platform has to keep 24% of reportable payments like these and send it to the IRS. Stripe Connect backup withholding is the part of contractor payments that Stripe's tax tools do not do for you: Stripe will flag the missing TIN and it will print a withheld amount on the form if you give it one, but it never holds back the 24%. That job, and the QuickBooks entries that go with it, belong to the platform.

This guide covers when the 24% applies, what Stripe does and does not do, and the three entries that keep your QuickBooks file and the 1099 Stripe files in agreement.

Start a free trial to see how Stripe Connect activity reaches QuickBooks before you build the withholding entries around it.

What is backup withholding on Stripe Connect payouts?

Backup withholding is a flat 24% that a payer must hold back from a reportable payment when the payee has not given a correct taxpayer identification number (TIN), and then pay to the IRS. On Stripe Connect, the payer of a contractor is usually the platform, so the platform withholds before it transfers.

The IRS states the rate plainly on its backup withholding page: "there are situations when the payer is required to withhold at the current rate of 24 percent." It names the trigger that matters for a contractor platform too. Backup withholding may be required "because you failed to provide a correct taxpayer identification number (TIN) to the payer for reporting on the required information return."

The money is not a penalty on the platform. It is the contractor's income tax, collected early. But if the platform fails to withhold when it should have, the platform is the one the IRS looks to for the amount, and it cannot easily claw back $960 from a transfer it already sent.

When the 24% applies to a contractor you pay through Stripe

Two situations start backup withholding. Both are common on platforms that onboard contractors quickly.

The contractor never gave a TIN. IRS Publication 1281 is direct about the timing: "Begin backup withholding immediately on any reportable payments." There is no grace period while you chase the form. You withhold from reportable payments until the TIN arrives.

The IRS tells you the TIN is wrong. After you file 1099s, the IRS matches each name and TIN. Mismatches come back on a CP2100 or CP2100A notice. Publication 1281 then gives you "15 business days from the date of the CP2100A or CP2100 Notice, or the date you received it (whichever is later)" to send the contractor a "B" notice, and tells you to begin withholding if a signed Form W-9 does not come back "no later than 30 business days after the date of the CP2100/CP2100A Notice or the date you received it (whichever is later)."

The threshold moved for 2026. The IRS instructions for Forms 1099-MISC and 1099-NEC say that "for tax years beginning after 2025, the minimum threshold amount for reporting certain payments required to be reported on certain information returns and/or perform backup withholding on those payments increased to $2,000." The same instructions add a rule that catches small balances: "You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment."

So once you withhold even $50 from someone, they get a form.

Marketplaces that issue a 1099-K instead are not exempt. The IRS 1099-K instructions say that "persons who have not furnished their TINs to you in the manner required are subject to backup withholding on payments required to be aggregately reported in box 1a." Whether your contractors get a 1099-NEC or a 1099-K is covered in our guide to Stripe Connect 1099-NEC forms and your QuickBooks books. The withholding mechanics below are the same either way.

What Stripe does, and the one thing it leaves to the platform

Stripe has real tax tooling for Connect platforms. None of it withholds.

Here is what Stripe documents:

1. TIN verification, in some cases. Stripe's Express Dashboard tax guide says a TIN "is verified against the IRS database if" you have applied a 1099 capability "that require[s] a verified TIN" and the connected account "meets the threshold for the applied capability." Below the threshold, nothing is checked.
2. A payout pause on a bad TIN. The same page warns that "connected accounts that enter an incorrect name-TIN combination might see their payouts paused until they update their name and TIN with verified information."
3. Form statuses. In Stripe's tax reporting dashboard, a form with a bad TIN shows Mismatch: "Name + TIN didn't match the records in IRS and need to be resolved before filing."
4. A box for the withheld amount. Stripe's tax form import has a federal_income_tax_withheld field, described as "The total amount withheld from federal income taxes, if any."

Read the fourth item carefully. Stripe prints a withheld amount that you supply. It does not compute one, and nothing in Stripe's documentation says it holds back any part of a transfer.

The payout pause looks like it might do the job. It does not. A pause stops money moving from the connected account's balance to the contractor's bank. By then your transfer has already left your platform balance, and Stripe's calculation methods guide is explicit that for separate charges and transfers, "Stripe derives the reportable amount for a separate charge and transfer from the transfer, not the charge." For the form, the payment happened when you transferred. Withholding has to happen before that.

Recording backup withholding in QuickBooks: the worked example

Back to Dana. This platform checks for a TIN before the first transfer, finds none, and Dana's work is set to pass the $2,000 threshold, so it withholds from day one. Each job is paid at 76% through Stripe, and the other 24% stays in the platform's Stripe balance.

April's three jobs look like this:

Job	Earned	Withheld (24%)	Transferred
Job 1	$1,500	$360	$1,140
Job 2	$1,200	$288	$912
Job 3	$1,300	$312	$988
April total	$4,000	$960	$3,040

Now look at what reaches QuickBooks. Acodei's Stripe Connect documentation has you create a product for Connect activity, which you "will likely link … to an expense or COGS account to track outbound transfers," and map the Transfer (Stripe Connect) type to it under Balance Transaction Mapping. Acodei then processes Connect transactions "on the daily balance summary or upon payout based on your preferences."

That gives you $3,040 of contractor expense for April. The real cost of Dana's work was $4,000. The missing $960 is not a saving. It is a debt to the IRS that has not been paid yet, and nothing in the Stripe data says so, because from Stripe's side the $960 simply never moved.

Three entries fix it.

Entry 1: gross up the expense and book the liability. At month end, record a QuickBooks journal entry:

• Debit Contractor payments: Stripe Connect, $960
• Credit Backup withholding payable (an Other Current Liability account), $960

Your expense now reads $4,000, which is what Dana earned. The liability reads $960, which is what you owe.

Entry 2: let the cash arrive normally. The $960 that stayed in your Stripe balance leaves with your next payout to your bank, alongside your other revenue. No special entry is needed. It is just cash you are holding for someone else, and Entry 1 already says so.

Entry 3: pay the IRS. When you deposit the withholding from your bank:

• Debit Backup withholding payable, $960
• Credit Operating bank account, $960

The liability goes to zero, and the bank feed has a matching line to reconcile against.

One detail decides how much bookkeeping Entry 1 needs. Acodei's documentation says it "only sends aggregated transfer information," and that "you will not be able to see in QuickBooks which contractors received specific transfers. You will only see the aggregated amount." So QuickBooks cannot tell you which part of a day's transfer line belonged to Dana. Keep the withholding calculation per contractor in a spreadsheet or your platform's own payout records, and post one gross-up journal entry per month for the total. Name each contractor in the memo line if you want an audit trail inside QuickBooks.

Depositing the 24% and filing Form 945

Backup withholding is not reported on Form 941 with payroll. It has its own annual return. Publication 1281 says: "Report backup withholding on Form 945, Annual Return of Withheld Federal Income Tax."

Whether you deposit during the year depends on the total. The Form 945 instructions say that "if the total amount of tax for 2025 is less than $2,500, you're not required to make deposits during the year," and that if the total for the lookback year "was more than $50,000, you're a semiweekly schedule depositor." Between those, you deposit monthly.

Dana alone shows how fast the threshold arrives. At $960 a month from April to December, the platform withholds $8,640 in the year. That is well past $2,500, so it deposits as it goes rather than paying with the return.

Keep Form 945 separate from payroll in your head and in your files. The 945 instructions tell you not to "combine Form 945 taxes with taxes for Forms 941, 943, 944, or CT-1 for purposes of determining any of the deposit rules." In QuickBooks that is a good reason to give backup withholding its own liability account rather than parking it in a payroll liability.

The 945 is due at the start of the following year: for 2025, the instructions say "file Form 945 by February 2, 2026," or by February 10 "if you made deposits on time in full payment of the taxes due for the year." Line 2 asks for "any backup withholding that you withheld (or were required to withhold)." Note the parenthesis. An amount you should have withheld and did not still belongs on the return.

Fixing the 1099 Stripe files for the contractor

This is where most platforms get the form wrong, and the error is in box 1, not box 4.

Remember that Stripe builds each contractor's total from transfers. Dana's April transfers were $3,040. Unless you change something, the 1099-NEC Stripe prepares will report $3,040 for April as Dana's compensation. Dana earned $4,000. The other $960 was paid on Dana's behalf to the IRS, outside Stripe.

Stripe gives you a field for exactly this kind of gap. Its tax form import guide explains that importing with delta values "allows you to add to (or subtract from) the values on the initial tax form totals by Stripe," which "lets platforms report just the totals of transactions that happened outside of Stripe." For Dana's year (April to December, nine months at $4,000 earned and $960 withheld):

• nonemployee_compensation_delta: plus $8,640, so box 1 carries the full $36,000 earned
• federal_income_tax_withheld: $8,640, so box 4 shows the tax you deposited

Box 1 and box 4 must tell the same story as your QuickBooks file. Contractor expense of $36,000 for Dana, $27,360 of it through Stripe and $8,640 through the IRS, ties to a form showing $36,000 earned and $8,640 withheld.

If you only fill in box 4, the form says Dana earned $27,360 and had $8,640 of tax withheld on it. That is a 31.6% withholding rate on paper, it understates Dana's income, and it will not tie to your expense account.

State filing needs its own check. Stripe's state requirements page says Stripe "won't transmit forms to states on your behalf that have backup or state withholding amounts." Any contractor you withheld from drops out of Stripe's state e-filing, so add those forms to your own state filing list in January.

Where platforms get backup withholding wrong

Five mistakes come up again and again.

1. Treating the payout pause as compliance. It holds the contractor's bank payout until the name and TIN are fixed. Your transfer already happened, and that transfer is what Stripe reports.
2. Withholding but booking the net. The synced transfer line is 76% of the cost. Without the gross-up entry your contractor expense is understated by about a quarter for every contractor in backup withholding.
3. Using a payroll liability account. Form 945 is not Form 941, and mixing the two makes the year-end tie-out harder for no benefit.
4. Fixing box 4 and forgetting box 1. Stripe's figure is the transfer total. The withheld amount has to be added back as compensation.
5. Re-entering every contractor payment by hand. If someone also records each Stripe transfer as a vendor bill to see Dana's payments by name, the expense is counted twice. Keep per-contractor detail in Stripe's tax reporting and your own payout records, and let QuickBooks hold the totals. Our walkthrough of recording Stripe Connect payments in QuickBooks covers how the platform-side accounts fit together.

When a TIN finally arrives, stop withholding on payments after that point. For a TIN supplied after a B notice, Publication 1281 says to "stop backup withholding no later than 30 calendar days after you receive the signed Form W-9 from the payee." What you already withheld stays withheld. It goes to the IRS and onto the form like everything else.

Frequently asked questions

Does Stripe do backup withholding for Connect platforms?

No. Stripe's documentation describes TIN verification, Mismatch and Missing statuses on tax forms, and possible payout pauses for an incorrect name and TIN, but not withholding. Stripe's tax form import has a federal_income_tax_withheld field for an amount the platform supplies. Calculating the 24%, holding it back from the transfer, and depositing it with the IRS are the platform's job.

What is the backup withholding rate in 2026?

The IRS describes the rate as "the current rate of 24 percent." It applies to reportable payments to a payee who has not provided a correct TIN, or after an unanswered "B" notice. For tax years after 2025, the IRS says the threshold for reporting on Form 1099-NEC and performing backup withholding increased to $2,000.

How do I record backup withholding in QuickBooks?

Record the transfer you actually sent as contractor expense, then post a journal entry that debits the same expense account for the withheld amount and credits a Backup withholding payable liability. When you deposit the money with the IRS, debit the liability and credit your bank. The expense then shows the full amount the contractor earned.

Where does backup withholding go on the 1099-NEC?

Box 4, federal income tax withheld. Box 1 must still show the full compensation, including the withheld portion. Because Stripe calculates the 1099-NEC from transfers, a platform that withheld needs to add the withheld amount back to box 1 using Stripe's delta import, as well as entering box 4.

Do I have to file Form 945 if I only withheld from one contractor?

Yes. Publication 1281 says to report backup withholding on Form 945, the Annual Return of Withheld Federal Income Tax. If the year's total is under $2,500, the Form 945 instructions say you are not required to make deposits during the year and can pay with the return.

Get the Connect side of the books right first

Backup withholding is a set of manual entries layered on top of whatever your sync writes. That only works if the base is predictable: one mapped product, one expense or COGS account, and Connect transfers arriving on a schedule you chose. Set that up first, then the monthly gross-up entry is a two-line journal entry rather than an investigation.

For the year-end side of the same work, see our guide to why the Stripe 1099-K and QuickBooks never match.

Start a free trial and map your Stripe Connect transfers into QuickBooks before the next contractor payment run.