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Business - How A Single-Member LLC Pays Employment Taxes For Employees PDF
Business - How A Single-Member LLC Pays Employment Taxes For Employees PDF
There can be some confusion about how the SMLLC pays employment taxes—the
taxes withheld from the pay of employees. Specifically, the question is which
Employer ID Number the SMLLC is supposed to use for this purpose.
The IRS says that a single-member LLC that is a disregarded entity for tax purposes
is treated as a separate entity for purposes of employment tax and certain excise
tax. This means that the SMlLC is required to use its name and employer ID for
reporting and payment of employment taxes. 1
The problem comes with the concept of needing an EIN. Businesses need EINs for
two reasons:
A Single-member LLC needs an EIN, as do all business entities. If the SMLLC has
employees the firm will have two identifier numbers. One is for the single member-
owner and the other is for the SMLLC entity. The IRS warns:
The IRS decided that an SMLLC may elect to be treated as either a disregarded entity
or as a corporation. As a disregarded entity, the single-member owner pays taxes
and reports activity on the owner's federal return as a sole proprietorship. This
reporting includes using Form 1040, Schedule C, Schedule E, and Schedule F.
In this case, if the SMLLC has employees , the business has two options for reporting
and paying employment taxes:
Using the name and Employer ID Number (EIN) assigned to the LLC, or
Using the name and EIN of the single-member owner.
A single-member LLC that is a disregarded entity that does not have employees and
does not have an excise tax liability does not need an EIN. It should use the name and
Taxpayer Identifier Number (TIN) of the single-member owner for federal tax
purposes. The TIN is like a Social Security number but is issued to the business entity
and not an individual.
After January 1, 2009, previous IRS regulations became obsolete, and the IRS has
stated that single-member LLCs will be responsible for collecting, reporting and
paying over employment tax obligations using the name and EIN assigned to the
LLC .
The IRS has attempted to clarify how a single-member limited liability company pays
employment taxes (federal income tax withholding, FICA taxes , and federal
unemployment taxes).
Even if the employment tax obligations are reported using the SMLLC's name and
federal employer identification number (EIN) , the single member owner retains
ultimate responsibility for collecting, reporting and paying over the employment
taxes.