The IRS has released updated draft instructions for Form W-9 (Request for Taxpayer Identification Number and Certification), alongside the previously issued draft version of the Form W-9 (Rev. January 2026). While many of the changes introduced in this draft represent clarifying language rather than entirely new compliance requirements, the update provides meaningful refinements that organizations should review closely.
As of the date of this article, both the form and the instructions remain in draft status and are subject to revision prior to final publication. However, the direction of the changes signals continued IRS focus on proper TIN reporting, entity classification clarity, and digital asset reporting alignment.
Below is a summary of the key updates relative to the March 2024 revision.
Sole proprietors and disregarded entities – clarified TIN rules
The draft instructions double down on something the IRS has long expected but many organizations still get wrong:
- Sole proprietors must provide an SSN (or ITIN if applicable)
- Disregarded entities must provide the owner’s TIN
- The EIN of the sole prop or disregarded entity should not be used for payee identification
This isn’t a new rule, but rather it’s clarified language intended to eliminate any ambiguity. The IRS is clearly targeting mismatch errors and backup withholding exposure caused by incorrect EIN usage.
Operationally: Onboarding workflows should validate entity classification and enforce owner-level TIN capture where required, noting that this may require remediation efforts where EINs have been provided.
Third-party network transactions & the de minimis rule
OBBBA (The One Big Beautiful Bill Act) introduces a de minimis rule that affects when third-party settlement organizations are required to report under §6050W and how backup withholding applies. Historically, TPSOs reported when payments exceeded $20,000 and 200 transactions. The law modifies how that threshold interacts with backup withholding. If prior-year transactions were below the reporting threshold, an exception can apply under §3406(b)(8)(A).
The practical takeaway:
Backup withholding logic now needs to align with the revised TPSO reporting threshold. Systems that automatically trigger withholding based solely on transaction flow may need to be recalibrated. This is less about changing the rate and more about changing when withholding is required.
Higher backup withholding and reporting thresholds
OBBBA also raises the reporting threshold to $2,000 under §§6041 and 6041A for many payments and ties the same threshold to backup withholding. This applies to payments made after 2025 and will be inflation-indexed going forward.
For compliance teams, this means future threshold logic will diverge from legacy $600 reporting assumptions in some contexts. Systems will need to support multiple rule sets during the transition years.
Digital asset brokers: new exempt recipient category
Final digital asset regulations add certain U.S. digital asset brokers to the list of exempt recipients. As part of that change, the draft W-9 updates Part II (Certification) to add a specific checkbox allowing a broker to certify to another broker that it qualifies as an exempt U.S. digital asset broker under the regulations.
In other words, the exemption isn’t just theoretical, the form now includes a built-in certification mechanism to operationalize it.
At the same time, transitional relief has been extended:
- Backup withholding is not required on digital asset sales through 2026
- Good faith filing relief may apply for 2025 1099-DA reporting
This signals that the IRS expects digital asset reporting to scale quickly, but recognizes implementation challenges. The W-9 is being positioned as a foundational control document in that ecosystem.
Organizations that use substitute W-9s or automated onboarding should plan to incorporate the new certification language so exemption status can be captured cleanly between brokers.
Even where the draft only adds clarifying language, it reflects areas where the IRS continues to see systemic error.
Organizations relying on automated onboarding and substitute W-9 workflows should treat this as an early signal to review logic now, before the draft becomes final.
At Comply Exchange, we’re continuously enhancing our solutions to automate form validation, enforce the correct TIN logic, and adapt seamlessly to IRS revisions. If you’re ready to make tax compliance onboarding simple, not stressful, we can help.
