Understanding the correct tax forms for employees and independent contractors is essential to ensure compliance, accurate withholding, and proper year-end reporting. Collecting the required forms and tax identification information early in the onboarding process reduces risk and avoids compliance issues.
Forms Used for Employee Tax Withholding
Form W-4 (Employee’s Withholding Certificate)
Each employee must complete Form W-4 to indicate how much federal income tax should be withheld from their paycheck. Employers rely on this form to apply the correct withholding.
Federal tax withholding formulas are based on:
- Taxable wages
- Pay frequency (weekly, biweekly, semimonthly, etc.)
- Filing status (single, married filing jointly, head of household)
- Adjustments in Steps 2–4 (dependents, additional income, deductions, extra withholding, or exempt status)
If an employee does not submit Form W-4:
- Withhold as Single, no adjustments (default setting).
- If the employee claims Exempt, it expires each year on February 15. If no new form is submitted, withholding defaults back to Single, no adjustments.
State and Local Withholding Certificates
- 41 states and D.C. require separate state withholding forms.
- Some local jurisdictions (cities, counties, school districts) also require their own certificates.
- Employers must collect these additional forms when applicable to ensure compliance.
Using IRS Publication 15-T to Calculate Federal Income Tax
Since 2020, the IRS has required employers to use Publication 15-T to calculate withholding. It is updated annually and provides formulas for accurate calculations.
Key details:
- Includes seven worksheets; Worksheet 1 (Percentage Method for Automated Payroll Systems) is the most relevant.
- Supports both pre-2020 and post-2020 versions of Form W-4.
- Simulates annual tax liability, then breaks it down per paycheck.
Employees can use the IRS Tax Withholding Estimator to check if their W-4 entries are correct.
Forms for Independent Contractors
Form W-9 (Request for Taxpayer Identification Number and Certification)
Independent contractors do not complete Form I-9 or Form W-4 and do not receive a W-2. Instead:
- They provide a Taxpayer Identification Number (TIN), which can be a Social Security Number (SSN) or an Employer Identification Number (EIN).
- They are typically issued a Form 1099-NEC (Nonemployee Compensation) for tax reporting.
The best practice is to request a completed Form W-9 at the start of the relationship.
Why Collecting the TIN Matters
If a contractor does not provide a TIN:
- The company must apply backup withholding (currently 24%) on all payments.
- Backup withholding continues until a valid TIN is received.
Once the TIN is provided:
- Backup withholding stops (unless the contractor requests otherwise).
- The company avoids filing Form 945 for backup withholdings.
- The risk of penalties for incorrect reporting on Form 1099-NEC decreases.
Note: While it’s possible to obtain the TIN from an invoice or contract, using Form W-9 is the most reliable and audit-friendly method. If collected outside of a W-9, the TIN should be validated using the IRS TIN Matching System.
Summary
- Employees → Complete Form W-4 (and state/local equivalents, if applicable). Employers use Publication 15-T to calculate withholding.
- Independent contractors → Provide a Form W-9 with a valid TIN. Employer issues Form 1099-NEC at year-end.
- Collecting forms early ensures compliance and prevents penalties, delays, or unnecessary withholding.
Resources
You can also refer to either of the following official government resources: