A single-member LLC (SMLLC) has the structure and liability protection of a limited liability company (LLC), but it can pay income taxes like a sole proprietor. This tax structure is called a "disregarded entity." The SMLLC is a unique hybrid in the world of business types.
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.
Key Takeaways
- Single-member LLC's (SMLLC) are entities that have corporation status but also characteristics of a pass-through business.
If an SMLLC needs to pay employment taxes, it pays them using the SMLLC's name and EIN. - For most other tax responsibilities, the SMLLC uses the owner's name and EIN.
- If an SMLLC doesn't pay employment taxes and has no excise tax liability, it doesn't need an EIN.
SMLLCs as Employers and Taxpayers
Single-member LLCs have the advantage of being in a specific limited liability company business form. This structure allows for the separation of the business owner for legal and liability purposes. However, the SMLLC member files income taxes like a sole proprietor.
Because a single-member LLC is disregarded as an entity for tax purposes, there is confusion about how they pay employment taxes. In essence, they are both the employer and the employee. Is the member responsible for paying these taxes through the owner's Social Security Number, or does the business pay these taxes through the business entity's employer identification number (EIN)?
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.
What Is an Employer Identification Number (EIN)?
An EIN—also known as a federal employer identification number (FEIN)—is a unique employer ID number given to the business by the Internal Revenue Service (IRS). It is used for tax purposes for businesses that have employees as well as for other identifying purposes like getting a line of credit. An EIN may also be required for opening a business bank account.
Businesses need EINs for two reasons:
- Because they have employees and pay employment taxes
- For registration and to show they are a legitimate business with banks and other businesses
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. These numbers should not be used interchangeably because they can cause problems at tax time.
Filing as a Disregarded Entity or a Corporation
Your SMLCC 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.
If the SMLLC has employees, the business has will use the owner's EIN and name for information returns and and other information related to income tax. However, the owner must use the company's EIN and name for employment and excise taxes.
Your SMLLC doesn't need an EIN if it doesn't have employees or an excise tax liability. In this case, you should use your name and taxpayer identifier number (TIN) for federal tax purposes. The TIN is like a Social Security number but is issued to the business entity and not an individual.
Who Has the Responsibility for Paying Employment Taxes?
The SMLLC owner is ultimately responsible for collecting, reporting, and paying employment taxes. Generally speaking, the owner must withhold the necessary employment taxes the IRS requires.
Frequently Asked Questions (FAQs)
How is a single-member LLC taxed by the IRS?
Generally speaking, a single-member LLC owner files their business taxes via their personal return. However, if the company has employees, the owner needs to collect and pay employment taxes.
Can I filed my single-member LLC and personal taxes separate?
Typically, you cannot file your taxes separately if your single-member LLC is a disregarded entity. If that's the case, your LLC's activities will be included in your personal tax return.
