IRS Draft Form W-9 (Jan. 2026) Release: Highlights and Impacts
On September 17, 2025, the IRS released a new draft Form W-9. The key updates can be summarized as follows:
Sole Proprietors – Must provide their Social Security Number (SSN) rather than an Employer Identification Number (EIN).
Disregarded Entities (DREs) – Must provide the Tax Identification Number (TIN) of the entity’s owner, not the TIN of the disregarded entity itself.
U.S. Digital Asset Brokers – May now claim an exemption from information reporting by checking a newly added box in the certification section (Jurat 5) and a new exempt payee code, “14” – a payee in a transaction involving digital assets exempt from backup withholding under Notice 2025-33 through calendar year 2026.
Sole Proprietors must provide a Social Security Number
The draft Form W-9 (Rev. January 2026) now requires sole proprietors to provide their individual SSN. They may no longer furnish an EIN obtained for the business.
Historically, many practitioners recommended using the SSN, since the income reported on the Form 1099 is intended to flow to the sole proprietor as an individual taxpayer. However, this is the first time the requirement has been made explicit in the instructions.
Explanation:
2024 Form W-9 Instructions (Part I, TIN): “If you are a sole proprietor and you have an EIN, you may enter either your SSN or EIN.”
2026 Draft Instructions (Part I, TIN): “Do not report the employer identification number (EIN) of a sole proprietor…”
Observation: Potential CP2100/ CP2100A Notices for Sole Proprietors using EINs
Publication 1281 (Rev. 12-2023), Backup Withholding for Missing and Incorrect NAME/ TIN(S), explains that the IRS sends a CP2100 or CP2100A notice to a payor when a payee’s Form 1099 contains a “missing, incorrect, and/ or not currently issued payee TIN”. A TIN is considered incorrect when:
“It is in the proper format, but the Name/ TIN combination does not match or cannot be found on IRS or Social Security Administration (SSA) files.”
Since Publication 1281 has not yet been updated to align with the draft Form W-9 (Rev. January 2026), the impact of filing a Form 1099 reporting a sole proprietor with an EIN remains unclear. However, given the new requirement that sole proprietors must provide an SSN (and not an EIN), it is reasonable to expect that sole proprietors who furnish an EIN may be flagged as a mismatch under the IRS’s TIN matching process.
Considerations for Payors
Payors should begin identifying sole proprietors currently on file with an EIN as their TIN.
Consider soliciting updated Forms W-9 with an SSN: This can be executed by using the March 2024 version or the draft Form W-9 (Rev. January 2026) once it is finalized.
Acting proactively will help minimize the chance of receiving CP2100/ CP2100A notices and the potential obligation to impose backup withholding if a valid SSN is not provided.
Disregarded Entities Must Use the Tax Identification Number of the Owner
In the case of a disregarded entity (DREs), the draft Form W-9 (Rev. January 2026) explicitly reiterates that the owner’s Taxpayer Identification Number (TIN) must be provided. This requirement is not new – previous versions of the form and instructions already highlighted this point – but the updated form language is more direct to eliminate ambiguity.
Typical scenarios, include, but are not limited to:
Single Member LLC with an individual owner
a. The form should be completed in the name of the US individual with their SSN provided.
b. The LLC name may be entered on Line 2.
c. If the owner is a foreign individual, Form W-8 or a Form 8233 may be required, depending on the type of payment
Single Member LLC with an entity owner (e.g., Corporation or Partnership)
a. The form should be completed in the name of the U.S. entity owner, with its EIN provided.
b. The LLC name may be entered on Line 2.
c. If the owner is a foreign entity, then a Form W-8 must be submitted. The form type will depend on the payment and the application treaty or exemption.
Other Disregarded Entity
a. The same rules apply: the documentation must “look through” the disregarded entity to the regarded owner.
b. If the direct owner is itself a disregarded entity, then documentation must be obtained from the first regarded entity in the ownership chain.
Considerations for Payors
Review existing Form W-9s in the file to ensure DREs are correctly documented under the name and TIN of the regarded owner.
Confirm system and onboarding processes effectively communicate the necessary documentation needed for a DRE.
New Category of Exempt Recipient for Sales of Digital Assets
The draft Form W-9 (Rev. January 2026) introduces a new category of exempt recipient under Part II, Certification. A broker may now check a box to certify that it is a U.S. digital asset broker (other than an investment advisor) and therefore qualify as an exempt recipient. In this case, the broker would not receive Form 1099-DA.
In addition, the IRS expanded Line 4 Exemptions, Exempt Payee Code to include Line 14:
“A payee in a transaction involving digital assets exempt from backup withholding under Notice 2025-33 through calendar year 2026. For later years, see Regulations section 31.3406(b)(3)-2.”
Considerations for Payors (where applicable)
Update onboarding and compliance systems to include the new exemption category and exempt payee code for digital asset brokers.
Confirm broker status where this exemption is claimed to reduce the risk of incorrectly treating a payee as exempt.
Monitor IRS guidance on digital asset reporting, as further updates may refine the scope of who qualifies as an exempt digital asset broker.
Frequent questions and answers are as follows:
Should I start using the draft Form W-9 now?
No, the draft Form W-9 should not be used until it is finalized by the IRS. However, you should be reviewing your payee population to identify:a. Sole proprietors who have provided an EIN instead of an SSN, and
b. Disregarded entities that submitted a Form W-9 without including the TIN of the regarded owner.
Once finalized, how long do I have to switch to the new Form W-9?
The new Form W-9 should be used as soon as it is released in final form. Unlike the Form W-8 series, there is no transition or grace period for adopting a revised Form W-9.
Do I need to obtain a new Form W-9 from all payees?
No, a new Form W-9 is not required from every payee already on file. The latest version must be used for documenting any new payees once it is finalized. That said, payors should review existing forms from sole proprietors and disregarded entities to ensure compliance with the new requirements.
How does the revision to Form W-9 affect my substitute form?
Substitute Forms W-9 must be updated to be substantially similar to the official IRS Form W-9, and it satisfies certain certification requirements. This includes incorporating the new certification statement (Jurat 5) for US digital asset brokers – even when the form is not being collected in connection with a digital asset transaction.
Is the collection of Form W-9 required under all circumstances?
No. A Form W-9 is generally required only for certain types of payments, such as interest, dividends, and barter exchange transactions. In other cases, a payee may provide their name and TIN in writing or verbally. However, most payors choose to collect and retain a Form W-9 for recordkeeping and compliance purposes.
* The information in this document is provided for general guidance only and does not constitute accounting, tax, or other professional advice. It is accurate as of the publication date and may not reflect subsequent regulatory updates.
