The IRS has attempted to clarify how a single-member limited liability company (LLC) pays employment taxes (federal income tax withholding, FICA taxes, and federal unemployment taxes).
SMLLC as Disregarded Entity
The IRS states that a single-member LLC may choose to be a disregarded entity. Basically, this just means that the single-member LLC files its taxes as a sole proprietorship. In this case, the SMLLC 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.
Who Has the Responsibility for Paying These Taxes?
The IRS says:
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.
When Does an SMLLC and Owner Need an EIN? Do Both Need EINs?
If the SMLLC has employees, both the single member owner and the SMLLC will need an EIN (two EIN's). The IRS warns:
These numbers should not be used interchangeably. Doing so will result in complicated problems which could require the taxpayer's, practitioner's, and IRS's resources to correct.
Update on IRS Regulations
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.
For More Information: IRS Article on Single-member LLCs and Employment Taxes
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