Final regulations issued by the Treasury Department last year pertaining to employment taxes and related reporting requirements of certain disregarded entities take effect for wages paid by such disregarded entities on or after January 1, 2009. A disregarded entity is a business entity that is disregarded for federal tax purposes as an entity separate from its owner. Disregarded entities affected by the final regulations include qualified subchapter S subsidiaries (a "QSub") and single-member limited liability companies (a "Single-Member LLC").
Prior to January 1, 2009, employment taxes and other employment tax obligations with respect to employees of a QSub or Single-Member LLC could be satisfied in one of two ways: (i) calculation, reporting, and payment of all employment tax obligations with respect to employees of the disregarded entity by its owner (as though the employees of the disregarded entity were employed directly by the owner of the disregarded entity) and under the owner's name and taxpayer identification number; or (ii) separate calculation, reporting, and payment of all employment tax obligations by the disregarded entity with respect to its employees under its own name and taxpayer identification number.
As of January 1, 2009, QSubs and Single-Member LLCs no longer have a choice with respect to the method chosen for reporting employment taxes, but instead must treat the QSub or Single-Member LLC, as applicable, as an entity separate from its owner. As a result, withholding and related employment tax reporting requirements related to wages paid by a QSub or Single-Member LLC on or after January 1, 2009 to its employees will be reported under the disregarded entity's separate employer tax identification number, rather than under the taxpayer identification number of its owner. Thus, each QSub or Single-Member LLC is responsible for collection and remittance of employment taxes attributable to wages paid to its employees, including filing forms 940 and 941, and for other employment tax obligations, such as backup withholding and providing W-2 forms to its employees. The disregarded entity, however, continues to be treated as a disregarded entity for other federal tax purposes.
If you need help obtaining an employer identification number to comply with the final regulations applicable to disregarded entities, you need to seek that assistance now.