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Introduction
When you form a Limited Liability Company (LLC), one of the most important questions is: How does the IRS treat your business for tax purposes? An LLC is created under state law, but the IRS decides how it is classified for federal taxes. Depending on the number of members and elections filed, an LLC can be taxed as a corporation, partnership, or as part of the owner’s return (a disregarded entity).
In this guide, we’ll explain what a disregarded entity is, how it affects Form W-9 compliance, and the important exceptions landlords, contractors, and small business owners need to know.
What Does “Disregarded Entity” Mean?
For income tax purposes, a disregarded entity is a business that the IRS ignores as separate from its owner. Instead, all income, deductions, and credits are reported directly on the owner’s tax return.
- Single-member LLCs (SMLLCs): By default, these are disregarded entities unless they file Form 8832 to elect corporate treatment.
- Multi-member LLCs: By default, these are taxed as partnerships, unless they elect corporate treatment.
👉 In simple terms: A disregarded entity is visible to the state as an LLC but invisible to the IRS as a separate taxpayer for income tax purposes.
How It Works for W-9 Purposes
If a disregarded entity must complete Form W-9, the IRS requires the owner’s taxpayer identification number (TIN) either a Social Security Number (SSN) or an Employer Identification Number (EIN) not the LLC’s EIN.
Example:
Jane Doe owns a single-member LLC. When asked for a W-9, she should provide Jane’s SSN or EIN, not the LLC’s EIN.
This rule ensures the IRS matches payments to the correct tax return.
Special Note: Employment and Excise Taxes
A disregarded entity is not ignored for all purposes. For certain tax obligations, it is treated as a separate entity:
- Since 2008 for excise taxes and 2009 for employment taxes, a single-member LLC must use its own EIN to register, file, and pay.
- The LLC (not the owner personally) is considered the taxpayer for:
- Payroll taxes on wages,
- Federal excise taxes (e.g., fuel tax, heavy vehicle use tax),
- Refunds, credits, and claims related to excise filings.
👉 Translation: For income taxes and W-9s, use the owner’s TIN. For payroll and excise taxes, use the LLC’s EIN.
When Does an LLC Need an EIN?
- An SMLLC with employees or excise tax obligations must have an EIN.
- An SMLLC with no employees and no excise taxes may not need an EIN for federal income tax reporting. In that case, the owner’s SSN/EIN is used.
- However, many SMLLCs still obtain an EIN because:
- Banks require it to open accounts,
- State laws may mandate it,
- It helps keep business identity separate from the owner’s SSN.
Community Property LLCs (Husband & Wife)
Under Rev. Proc. 2002-69, a husband-and-wife LLC in a community property state can choose to be treated as either:
- A disregarded entity (reported on one return), or
- A partnership.
This flexibility only applies in community property states. In non-community property states, a husband-and-wife LLC is treated as a partnership by default.
Tip
The IRS updated Form W-9 in March 2024 with clearer instructions for disregarded entities. Always download the latest version from IRS.gov. Using an outdated form may lead to rejections, backup withholding, or mismatched records.
👉 Related: Are You Filing W-9s Wrong? Find Out
Conclusion
A disregarded entity is most often a single-member LLC that the IRS treats as the same taxpayer as its owner for income tax purposes. When completing a Form W-9, the owner’s SSN or EIN must be provided—not the LLC’s EIN.
However, remember that for employment taxes and excise taxes, the IRS treats the LLC as a separate entity and requires it to use its own EIN.
👉 Avoid W-9 mistakes and IRS headaches.
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