October 22, 2008
Tip of the Week: Payroll Tax Change Deadline Looms for Certain LLCs and Qualified Subchapter S Subsidiaries
Filed under: News
Vision Payroll

In TD 9356, the Internal Revenue Service made final the regulations on disregarded entities effective August 16, 2007. In order to allow taxpayers sufficient time to make the changes required by the regulations, the IRS delayed the effective date for the payroll tax changes until January 1, 2009. Under the new regulations, qualified subchapter S subsidiaries (QSubs) (under §1361(b)(3)(B) of the Internal Revenue Code of 1986) and single-owner eligible entities (under §301.7701-1§301.7701-2, and §301.7701-3 of the Procedure and Administrative Regulations) that are treated as disregarded entities for most federal tax purposes will be treated as corporations for employment tax purposes. Therefore, owners of single-member LLCs who are treated as sole proprietors for income tax purposes must treat their LLCs as separate entities for employment tax and related reporting purposes. The final regulations clarify that an owner of a disregarded entity will continue to be treated as self-employed and not as an employee of the entity. The regulations also clarify that disregarded entities that are owned solely by a §501(c)(3) organization will maintain the organization’s exemption from federal unemployment tax or FUTA. Contact Vision Payroll if you have questions on changes to the payroll tax reporting procedures for single-owner eligible entities and QSubs.


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