Tax forms for employees and independent contractors
Understand tax forms for employees and independent contractors to ensure compliance and accurate withholding.
Tax forms for employees and independent contractors
Goals
- Understand the forms used to calculate tax withholding
- Know why it’s important to collect forms and tax identification information early in the onboarding process
Forms used for employee tax withholding
Form W-4 (Employee’s Withholding Certificate)
Each employee must submit Form W-4 to specify how much federal income tax to withhold from each paycheck. This form plays a critical role in ensuring accurate tax withholding for the employee.
Federal tax withholding formulas are based on:
- Taxable wages
- Pay period frequency (e.g., weekly, biweekly, semimonthly)
- Filing status (e.g., single, married filing jointly, head of household)
- Other entries in Steps 2–4 (e.g., dependents, other income, deductions, additional withholding, exempt status)
If an employee does not submit a W-4:
- The employer must withhold as if the employee selected single with no entries in Steps 2–4.
- If the employee claims exempt, the exemption expires on February 15 of the following year. If a new form is not submitted by that date, the employee should default to single with no adjustments.
State and local withholding certificates
41 states and the District of Columbia require state income tax withholding. Additionally, several jurisdictions impose local taxes (e.g., school district, county, city). Most of these jurisdictions require their own state or local withholding certificates, which differ from the federal Form W-4.
Depending on where a company operates, it may need to collect multiple withholding certificates to ensure compliance with all applicable tax authorities.
Using Publication 15-T to calculate federal income tax
Since 2020, the IRS has required the use of Publication 15-T to calculate federal income tax withholding. The publication is updated each year and typically released in late November or early December for the upcoming tax year.
Publication 15-T includes:
- Seven worksheets for calculating withholding - however, only the first worksheet is relevant for calculation within the payroll system.
- Multiple calculation methods, depending on whether the payroll system is automated or manual
- Separate calculations based on whether the employee submitted a pre-2020 or post-2020 Form W-4
Worksheets for automated and manual payroll systems
- Worksheet 1 – Percentage Method for Automated Payroll Systems
- Can be used with all W-4 versions
- Annualizes wages, applies withholding rules, and then de-annualizes to determine per-paycheck withholding
- Mirrors the annual tax liability simulation on Form 1040
Employees who wish to verify their withholding amounts can use the IRS’s Tax Withholding Estimator (opens in a new tab) to inform their W-4 entries.
Forms for independent contractors
Form W-9 and the Taxpayer Identification Number (TIN)
Independent contractors do not complete Form I-9 or Form W-4 and do not receive a Form W-2. Instead, they typically receive Form 1099-NEC (Nonemployee Compensation) for tax reporting.
The company must collect the contractor’s Taxpayer Identification Number (TIN), which may be a Social Security Number (SSN) or Employer Identification Number (EIN). The most reliable method to request this is Form W-9 (Request for Taxpayer Identification Number and Certification).
Why collecting the TIN matters
If a company does not receive a TIN, it is required to withhold backup withholding—currently set at 24%—on all payments to the contractor. This requirement continues until the correct TIN is received.
Once the TIN is collected:
- Backup withholding should stop unless the contractor specifically requests it continue
- The company avoids the need to file Form 945 (Annual Return of Withheld Federal Income Tax) for those backup withholdings
- The company reduces the risk of penalties for reporting incorrect information on Form 1099-NEC
While it is possible to obtain the TIN from an invoice or contract, collecting a Form W-9 is the most accurate and audit-friendly method. If the TIN is collected outside of Form W-9, companies should validate it using the IRS’s TIN Matching System.
Let me know if you'd like to include related Check system guidance (e.g., where to input W-4 details or track contractor forms in Console).
Last updated on June 6, 2025