How US employers use IRS Form W-9 and W-8BEN when paying contractors

1. Set the worker's status

First decide whether the worker is genuinely an independent contractor: a contract label alone does not settle employee status, because behavioral control, financial control, and the relationship itself matter. Record that decision separately from tax-form intake, then send any written request through a consistent business letters checklist.

2. Route the request by tax status

Use the payee's US tax status and legal entity type, rather than location or accent, to route the request. US persons and domestic entities generally provide Form W-9; a nonresident alien individual provides Form W-8BEN. Foreign entities use the entity certificate, not the individual version.

A contractor based in Toronto can still be a US person, while someone working from a US state can be foreign for tax purposes. A US citizen working abroad is generally still a US payee, as is a green card holder for withholding. If uncertain, request a W-9 and have the payee state foreign status in writing.

A single-member LLC owned by a US citizen usually files as a disregarded entity and supplies Form W-9 using the owner's name and TIN. A foreign-owned LLC may need Form W-8BEN-E; foreign corporations and partnerships also use that entity form. Review IRS guidance for foreign payees when the foreign payment route is uncertain.

3. Inspect the returned certificate

Ask for a completed certificate before releasing payment: its name, classification, taxpayer number, and certification underpin later reporting. A US payee completes W-9, while a foreign individual completes W-8BEN and a foreign entity uses W-8BEN-E. Any treaty benefit is entered by the payee, not the payer.

On W-9 line 1, the individual or entity that owns the income gives its name; a sole proprietor uses the individual name, not a trade name. Line 2 is for a business or disregarded entity name. Since the IRS matches the TIN to line 1, a nickname or DBA there can cause a mismatch.

Line 3 records federal tax classification. A sole proprietor usually checks individual or sole proprietor; a single-member LLC checks the owner's status, while a corporation checks C corporation or S corporation. An LLC taxed as a corporation uses the corporation box. The TIN is an individual's Social Security number or an entity's EIN.

Do not accept a partial number or one written on a sticky note. The contractor signs Part II under penalties of perjury, certifying the number and backup withholding status. A typed signature may be accepted if it meets IRS electronic signature rules, but an unsigned W-9 is not valid.

W-8BEN records an individual's name, citizenship country, permanent residence and mailing addresses, foreign taxpayer identifying number, and any applicable treaty claim. A qualifying contractor may claim a reduced rate on US source income by entering the treaty country and article. The payer should not complete that claim for the contractor.

W-8BEN generally stays valid through the third calendar year after its signature year. A form signed in 2026 is generally valid through 2029, unless circumstances change. A new name, country, treaty claim, or status requires an updated form. W-9 has no comparable expiration date, but changes to name, entity, address, or TIN call for a refresh.

4. Reconcile US names and numbers

Obtain an EIN before issuing or collecting contractor forms, and use it on the W-9 request line when appropriate. Apply through the IRS EIN assistant, by fax, or by mail. Check the signed name and number together rather than relying on information copied from an informal note.

The free IRS TIN matching service lets payers who file information returns check a US name and TIN combination before filing. It returns a match, mismatch, or explanatory code. Enrol once and check each new contractor, ideally before the first payment rather than after year end.

A mismatch does not identify the incorrect field. Ask the contractor to verify both name and number against a Social Security card or IRS letter. Catching an error early avoids submitting a 1099-NEC with the wrong TIN and then having to correct a return or address possible penalties.

TIN matching is designed for US name and number combinations, not foreign payees. For a foreign individual, check the W-8BEN details, foreign identifying number, and treaty claim instead. If a contractor incorporates during the year, obtain a new W-9 with the new EIN before the next payment.

5. Apply withholding when required

Apply backup withholding when a US payee fails to provide a correct taxpayer identification number or meets another listed trigger. The rate is 24 percent of reportable payments, sent to the IRS as a deposit of the contractor's tax rather than a penalty on the payer.

Triggers include having no W-9 on file, receiving a W-9 with no TIN, having a number rejected through TIN matching, or receiving a form from a payee who fails to certify. A payee subject to backup withholding who does not check the exemption box is also a trigger for withholding on reportable contractor payments.

Withholding continues until the payee gives you a correct TIN and certifies it. A request to stop is not enough: a new, valid W-9 is the off switch, and it applies to payments made after you receive it. Report the withheld amount on the contractor's 1099-NEC and your employment tax return; the contractor claims it as a credit.

Withhold against the reportable amount, not an invoice total reduced by expenses. If the IRS sends a B notice about an incorrect name and TIN combination, send the notice to the payee and withhold until a correct W-9 arrives. Ignoring the notice leaves the 24 percent withholding in place.

6. Assign each payment a reporting route

For nonemployee payments made in a trade or business, Form 1099-NEC generally applies at $600 or more for the year and is due to the IRS and contractor by January 31. The payee type and payment type still guide which year-end form applies.

Use an operational checklist format to assign someone to compare payment category, payee status, and reporting path before close; this keeps form intake and year-end review connected without treating them as the same decision at the point of approval.

Corporations are generally exempt from 1099-NEC for services, but legal services and medical payments are exceptions. Attorneys and law firms receive 1099-NEC even when incorporated, so request a W-9 from every corporation and decide reportability by payment type.

Payments through a third-party platform, such as a payment app or staffing agency, may be reported by that platform. Still identify the payee and determine whether the platform reports. Keep the W-9 or W-8BEN in your records either way, so the payee's status and payment trail remain documented.

7. Keep the evidence together

Retain the signed certificate, not just information transcribed into a spreadsheet. Keep each W-9 or W-8BEN for at least four years after the return due date for the payment; some advisers keep seven years as an additional cushion.

A complete file should make the decision and payment trail easy to follow.

A complete file includes the W-9 or W-8BEN, contract or statement of work, TIN matching results, payment records, and any B notice correspondence. Store invoice and receipt copies and use invoice and payment records to support disbursements; profit and loss forms can show contractor costs by project.

Write down who collects forms, checks TINs, and approves payment before the first disbursement. An operational checklists template can make the steps repeatable. Keep the written procedure with the file in case a state agency or the IRS asks how contractor status is assessed.

Store records in a shared drive folder for each contractor, named by legal name and the last four TIN digits, so a new bookkeeper can understand the file. Keep the form version used with its related payment records, and note the retention date alongside the signed certificate and any later correction correspondence.