An exempt payee code identifies certain payees that qualify for an exemption from backup withholding on specified payments. Use the IRS code list and your federal tax classification, not your expected income or organization name, to decide what belongs on Form W-9.

Flat illustration of a tax document and a matching key selected from several shapes to represent choosing an exempt payee code.

Key Takeaways

  • Form W-9 uses exempt payee codes 1 through 13 for specific organizations, governments, financial entities, corporations, and trusts.
  • Exempt payee status concerns backup withholding and, for some payments, information reporting. It does not automatically make all income tax-free.
  • Individuals, sole proprietors, and partnerships generally leave the exempt payee code blank.
  • An LLC's answer depends on its federal tax classification and, for a disregarded entity, the classification of its owner.
  • Code 1 generally applies to an organization exempt under section 501(a), but a nonprofit should confirm its federal status before using it.
  • The exempt payee code and exemption from FATCA reporting code are separate Form W-9 fields.

Exempt Payee Code List for Form W-9

The following lookup reflects the exempt payee categories in the current IRS Form W-9 and its instructions. The payment column summarizes the IRS payment-specific chart. An entity can qualify under a code but remain nonexempt for a particular kind of payment.

Code Type of payee Payments commonly covered by the exemption
1 An organization exempt from tax under section 501(a), an IRA, or a qualifying custodial account under section 403(b)(7) Generally all payment categories shown in the IRS exempt-payee chart
2 The United States or a federal agency or instrumentality Generally all listed payment categories
3 A state, the District of Columbia, a U.S. possession, or their political subdivisions, agencies, or instrumentalities Generally all listed payment categories
4 A foreign government, political subdivision, agency, or instrumentality Generally all listed categories, subject to the rule for payments treated as effectively connected with a U.S. trade or business
5 A corporation Interest and dividends and certain reportable payments; broker-payment treatment differs for C and S corporations, and corporate exceptions apply to some payments
6 A securities or commodities dealer required to register in the United States, the District of Columbia, or a U.S. possession Generally interest, dividends, and broker transactions
7 A futures commission merchant registered with the Commodity Futures Trading Commission Generally broker transactions, but not the chart's interest and dividend category
8 A real estate investment trust Generally interest, dividends, and broker transactions
9 An entity registered throughout the tax year under the Investment Company Act of 1940 Generally interest, dividends, and broker transactions
10 A common trust fund operated by a bank under section 584(a) Generally interest, dividends, and broker transactions
11 A financial institution Generally interest, dividends, and broker transactions
12 A middleman known in the investment community as a nominee or custodian Generally interest and dividend payments
13 A trust exempt from tax under section 664 or described in section 4947 Generally interest and dividend payments

Codes 3 and 5 are not interchangeable simply because an entity was created under state law. Code 3 covers governmental payees described in the instructions. Code 5 covers corporations, subject to payment-specific exceptions. Always check the current form rather than relying on an old exempt payee code list PDF.

What Is an Exempt Payee, and What Does the Code Mean?

An exempt payee is a payee excused from backup withholding for payments covered by its IRS category. Depending on the payment, the payee may also be exempt from some information reporting. The code tells the requester why the payee claims that treatment.

Exempt payee status is narrower than a general exemption from income tax. A corporation may use code 5 for covered payments even though it pays federal income tax. Conversely, an individual who expects no tax liability does not become an exempt payee merely because income is low. Individuals, sole proprietors, and partnerships generally are not exempt payees under the Form W-9 categories.

The payment type matters. Corporations are generally exempt for certain payments, but corporate exemptions do not apply uniformly. For example, the Form W-9 instructions identify special treatment for medical and health care payments, attorneys' fees, and gross proceeds paid to attorneys. Broker transactions also distinguish between C corporations and S corporations in some circumstances.

The practical difference between an exempt and non-exempt payee is straightforward. An eligible exempt payee enters the supported code. A non-exempt payee leaves that field blank, provides the required name and taxpayer identification number, and completes the certification. Leaving the code blank does not mean backup withholding automatically applies. It means the payer uses the ordinary W-9 and backup-withholding rules.

Where to Enter the Exempt Payee Code on a W-9

The exempt payee code appears in the exemptions area on Form W-9, below the federal tax classification section. Enter only the number that matches your status. Do not write a description such as "nonprofit," "LLC," or "tax exempt" in place of a code.

  1. Enter the correct name. Line 1 must show the name of the person or entity whose taxpayer identification number appears on the form.
  2. Add a business or disregarded-entity name if applicable. Use line 2 when that name differs from line 1.
  3. Select the federal tax classification. Choose the classification that applies under federal tax rules, not merely the entity label used in formation documents.
  4. Complete the exemptions area. Enter an exempt payee code only if the IRS category and payment type support it.
  5. Provide the address and taxpayer identification number. The name and number should correspond to IRS records.
  6. Review the certification. Sign the form when the requester and instructions require a signature.

Form W-9 also has a separate field for an exemption from Foreign Account Tax Compliance Act reporting. A FATCA reporting exemption code is not an exempt payee code. FATCA codes use letters, apply under different rules, and are generally relevant to accounts maintained outside the United States. Do not move a number from the exempt payee field into the FATCA field or assume that qualifying for one exemption establishes the other.

The official W-9 does not have a Box 14 category. A reference to Box 14 may concern Form W-2, a substitute W-9, or a requester's online vendor form. Ask the requester what its field means before entering a W-9 exemption code there.

Exempt Payee Codes for Nonprofits and LLCs

A 501(c)(3) organization generally looks to code 1 because that code covers an organization exempt under section 501(a). The organization should confirm its actual federal status through its IRS determination letter and current tax records. Incorporating as a nonprofit under state law, applying for recognition, or operating for a charitable purpose does not by itself establish that a particular federal W-9 category applies.

Not every organization commonly called a nonprofit has the same tax status. An organization awaiting recognition, a taxable nonprofit corporation, or an entity operating through a fiscal sponsor may need different treatment. The legal name and taxpayer identification number on the W-9 must also identify the proper payee. For more detail on entities combining LLC and exempt-status issues, see the rules for a tax-exempt LLC.

An LLC should follow this federal-classification decision path:

  • Single-member disregarded LLC: The LLC does not receive code 5 merely because it is an LLC. Form W-9 generally uses the owner's name and federal classification. The owner's status controls the exemption analysis.
  • LLC taxed as a partnership: A partnership is generally not an exempt payee, so the code field is usually blank.
  • LLC taxed as a C corporation: Code 5 may apply, subject to the type of payment and corporate exceptions.
  • LLC taxed as an S corporation: Code 5 may apply to covered payments, but special limitations can affect broker transactions and other payment categories.
  • LLC owned by an exempt organization or government: Review the disregarded-entity instructions and identify the proper owner before selecting a code.

For line-by-line treatment, review W-9 requirements for an LLC and the broader IRS tax rules for LLCs.

If an LLC, nonprofit, trust, or other entity cannot determine its classification, has submitted a disputed code, or received an IRS backup-withholding notice, you can post your legal need on UpCounsel's marketplace. A tax attorney can review formation and tax-status records, identify defensible W-9 treatment, correct prior certifications, and help answer the payer or IRS. Responses typically arrive within a day.

How Backup Withholding Relates to Exempt Payee Status

Backup withholding requires a payer to withhold federal income tax from certain reportable payments and send it to the IRS. The current federal backup-withholding rate is 24%. It can apply to payments such as interest, dividends, rents, royalties, nonemployee compensation, payment-card transactions, and broker proceeds when the applicable requirements are met.

Common triggers include failing to provide a taxpayer identification number, providing a number that the IRS reports as incorrect, or receiving an IRS notice concerning underreported interest or dividends. A payee can also face withholding if a required certification is missing. Simply owing federal income tax is not, by itself, the same as receiving a backup-withholding determination.

An eligible exempt payee uses the code to tell the requester that backup withholding generally should not apply to covered payments. A non-exempt payee normally leaves the code blank. If that payee provides a correct name and taxpayer identification number and is not otherwise subject to backup withholding, the payer ordinarily pays the full amount without backup withholding.

Backup withholding is not an additional tax. Amounts withheld are reported to the payee and may be claimed on the payee's federal income tax return as tax paid. The payee should retain payment statements and notices needed to support the credit.

Information reporting is a separate question. A payer may still need to issue an information return depending on the payee, payment, amount, and applicable exception. Businesses reviewing vendor payments can consult the rules on Form 1099 requirements for LLCs.

Unsupported Codes, Corrections, and Requester Checks

Entering an unsupported code can cause a payer to treat a reportable payment incorrectly. The payer may reject the W-9, request entity documents, ask for a corrected form, delay onboarding, or begin backup withholding if IRS rules or a notice require it. False statements can also expose the signer to applicable federal penalties.

If you discover an error, provide the requester with a new Form W-9 showing the correct name, classification, taxpayer identification number, and exemption fields. Tell the requester that the replacement corrects an earlier certification. Keep a copy of both the corrected form and related correspondence. If the error affected past reporting, ask the payer or a tax professional whether an information return must be corrected.

Requesters should not assign a code based solely on a vendor's name. Instead, they should:

  • Use the current Form W-9 rather than an unofficial or outdated template.
  • Check that the name, classification, and taxpayer identification number are internally consistent.
  • Review whether the claimed code covers the payment being made.
  • Seek a new W-9 after a change in ownership, tax classification, name, or exempt status.
  • Follow IRS notices concerning missing or incorrect taxpayer information.
  • Retain the W-9 and related records under the requester's document-retention procedures.

The IRS requester instructions for Form W-9 explain when to obtain the form, how substitute forms may be designed, and when backup withholding applies. A requester should not alter the certifications in a way that misrepresents their meaning or use a substitute form that prevents the payee from making the required certifications.

Frequently Asked Questions

What Is an Exempt Payee Code?

An exempt payee code is a number entered on Form W-9 to identify the IRS category supporting a payee's exemption from backup withholding. It is not an industry code, business-license category, or statement that the payee owes no income tax. The number must match the payee's federal status and the payment involved.

What Is an Exempt Payee?

An exempt payee is a person or entity that qualifies for special backup-withholding treatment under an IRS category. The category can cover all or only some payments. A payee should evaluate the legal recipient of the payment rather than assuming that every account, subsidiary, or trade name shares the same exemption.

What Is an Exempt Payee Code on a W-9?

On Form W-9, the exempt payee code explains an exemption claim to the business or institution requesting taxpayer information. Requesters use it when deciding how to process backup withholding and information reporting. The field is optional when no code applies, so a non-exempt payee should not enter zero, "N/A," or a guessed number.

How Do I Fill Out a W-9?

Fill out Form W-9 by entering the tax owner's name, any separate business name, federal tax classification, address, and correct taxpayer identification number. Complete an exemption field only when supported, then review the certification and signing instructions. Give the form to the requester, not directly to the IRS, unless the IRS specifically instructs otherwise.

Is My LLC Exempt From Backup Withholding?

Your LLC is not automatically exempt from backup withholding. Its federal election, number of owners, and the status of any tax owner determine the relevant W-9 treatment. Check tax-election confirmations and prior federal returns rather than relying only on articles of organization or the state business registry.

What Do I Put in Box 14 Category?

Do not use a W-9 exempt payee code in a Box 14 field unless the requester confirms that its substitute form uses that label for the W-9 exemption. The official Form W-9 has no Box 14. If the reference comes from Form W-2, Box 14 generally contains employer-provided information and is unrelated to exempt payee status.