New Rules on Employment Taxes for Single Member LLC’s
The IRS has issued final regulations (T.D. 9356) on employment and excise taxes for disregarded entities, including single member LLC’s, and Qualified Subchapter S Subsidiaries (QSUB’s). These final regulations provide that a disregarded entity is treated as a separate entity (a corporation) for purposes of employment taxes and the related reporting requirements. The new regulations were effective August 16, 2007 and are applicable to wages paid on or after January 1, 2009.
Practically speaking these regulations mean that the business entity is responsible for filing and paying for employment taxes, as opposed to the owner at the individual level. With this treatment, owners of single member LLC’s are not responsible for the employment tax obligations of the entity. However, TLB cautions the owner may still have exposure under other rules, such as the responsible party provisions.
The IRS will still allow a single member LLC to calculate, report and pay all employment tax obligations as though the employees of the LLC were employed directly by the owner – and under the owner’s name and taxpayer identification number.
Alternatively, the single member LLC may calculate, report and pay all employment tax obligations under the entities name and taxpayer identification number.
Effective January 1, 2009, those who report employment taxes under the owner method are required to continue to use this method ongoing unless and until otherwise permitted by the IRS Commissioner. However, a taxpayer may take the opportunity now to convert from the owner method to the entity method of reporting without seeking permission – as long as it is done before January 1, 2009. Taxpayers who switch methods may consider wages paid by the owner to employees during the calendar year of the switch as having been paid by the entity for purposes of determining the various wage and benefit bases used in calculating employment taxes.
Please contact TLB if we can help you evaluate which option is the best for your facts and circumstances. Posted by Rich Bienvenue