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August 2007 | ||
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Special Issue Payroll Insights is a publication from KPMG LLP's Employment Tax Practice. It is designed to provide you with current developments in the payroll and employment tax arena and will be published periodically throughout the year as developments warrant. In This Issue | |
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IRS Issues Final Regulations Regarding Payment and Reporting of Employment and Excise Taxes by Disregarded Entities Under new final regulations, T.D. 9356, qualified subchapter S subsidiaries and single-owner eligible entities (including single member LLC's) that are currently treated as disregarded entities for federal tax purposes will be treated as separate entities for employment tax and related reporting requirement purposes. The regulations became effective August 16, 2007, and apply to wages paid on or after January 1, 2009, and to liabilities imposed and actions first required or permitted in periods beginning on or after January 1, 2008, with respect to excise taxes. Disregarded entities may continue to use the procedures permitted by Notice 99-6 for wages paid prior to January 1, 2009. Notice 99-6 provides that if owners of disregarded entities calculate and pay all employment taxes and satisfy other employment tax obligations related to employees of the disregarded entity under the owner's name and tax identification number (TIN), then the owner must continue to use this method unless otherwise permitted by the Commissioner (Method 1). The new regulations modify Notice 99-6 allowing taxpayers to switch to Method 2 (separate calculation, reporting, and payment of all employment tax obligations by each state law entity with respect to its employees under its own name and TIN) with respect to wages paid on or after August 16, 2007 and before January 1, 2009, without seeking permission from the IRS. Further, taxpayers who switch from Method 1 to Method 2 for wages paid prior to January 1, 2009, may consider wages paid by the owner to employees of the disregarded entity during the calendar year of the switch as having been paid by the disregarded entity for purposes of determining whether wages paid to those employees have reached the social security contribution and benefit base, and for purposes of the wage base under section 3306. | |||
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Employer Action Steps Affected employers should review their employment tax reporting and payment processes to determine whether they will be required to amend their methodology to come into compliance with the regulations. The new regulations could affect not only the federal but also the state employment tax reporting methodology, since some state reporting follows the federal treatment. Employers should consider a general review of their payroll and payroll tax position with respect to their current and prospective treatment of disregarded entities. | |||
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