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Federal unemployment tax reporting for disregarded entities
Summary ETA told states that federal unemployment tax reporting for single-member LLCs and certain S corporation subsidiaries would move to the entity’s own name and employer ID for wages paid from January 2009. It asked states using owner-level reporting to prepare matching certification procedures. ETA lists the letter as Active, but its printed expiration date was September 8, 2009; current applicability is unclear.
Document
Federal guidance
Agency
U.S. Department of Labor, Employment and Training Administration (ETA)
Document number
UIPL No. 26-08
Date issued
September 8, 2008
Status
Unknown
ETA lists this letter Active as of 2026-10-24, but its PDF prints an expiration date of September 8, 2009. It discusses an IRS change effective for wages paid from January 2009; current applicability of the letter is unclear.
Status last verified October 24, 2026
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This page explains the general guidance. Ask about your specific situation and see what current federal labor law says, with citations.
About this page: The full text below is the official document from U.S. Department of Labor, Employment and Training Administration (ETA). Ezel adds the plain-English summary and tracks the document's status. The official source linked on this page is authoritative for any reliance.
UIPL26-08acc.pdf (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/2008/UIPL26-08acc.pdf)
CLASSIFICATION
EMPLOYMENT AND TRAINING UI
ADMINISTRATION ADVISORY SYSTEM CORRESPONDENCE SYMBOL
U.S. DEPARTMENT OF LABOR OWS / DUIO
Washington, D.C. 20210 DATE
September 8, 2008
ADVISORY: UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 26-08
TO: STATE WORKFORCE AGENCIES
FROM: BRENT R. ORRELL /s/
Deputy Assistant Secretary
SUBJECT: Internal Revenue Service Bulletin 2007-39 - Changes to Treatment of
Disregarded Entities That Affect the FUTA Certification Process
1. Purpose. To notify states of imminent changes by the Internal Revenue Service (IRS) that
will affect reporting Federal Unemployment Tax Act (FUTA) payments by certain
employers. The changes, which will become effective for wages paid on or after January 1,
2009, will affect single-member limited liability companies (SMLLC) or qualified
subchapter S subsidiaries (QSub), who are “disregarded” by the IRS as entities separate
from their owners for Federal tax purposes (disregarded entities).
2. References. Internal Revenue Bulletin (IRB) No. 2007-39; IRB 2005-45 (Notice of
Proposed Rule Making); IRB No. 1999-3 (Notice 99-6, which will expire on January 1,
2009); 26 CFR Part 1 (Income Taxes); 26 CFR 1.1401 (Tax on Self-Employment Income);
26 CFR Parts 31 through 39 (Employment Taxes and Collection of Income Tax at Source);
26 CFR Part 301 (Procedure and Administration).
3. Background. Limited Liability Companies (LLCs) were created by state statute. When the
states created LLCs, the IRS did not create a new tax classification, but instead applied the
three tax entity classifications it had always used for business taxpayers: corporation,
partnership, or sole proprietor. SMLLCs may presently elect treatment as a corporation for
Federal employment tax purposes by filing Form 8832, Entity Classification Election.
Absent an election, the IRS currently regards an SMLLC as a sole proprietor for
employment tax purposes.
IRS Notice 99-6, which expires January 1, 2009, provides SMLLCs and QSubs the option to
report Federal employment taxes either at the owner level or at the entity (LLC or QSub)
level. This allows an owner of multiple disregarded entities to consolidate employment tax
RESCISSIONS EXPIRATION DATE
None September 8, 2009
reporting for his or her employees to the IRS under a single Employer Identification
Number (EIN). The election applies only to the reporting of employment taxes for
employees of the LLC or QSub. The IRS regards the LLC single-member owner as self-
employed, and not as an employee for employment tax and FUTA purposes.
At the state level, Unemployment Compensation (UC) tax administrators have adopted
various SMLLC coverage and reporting requirements. While some states require reporting
at the entity level, other states require reporting at the owner level, and still others offer the
LLC or QSub owner the option to report at either the owner or entity level, following the
IRS guidance under IRS Notice 99-6. In addition, each state has policies and procedures in
place to ensure that the employers make their UC tax payments in accordance with state
and Federal UC law.
4. Policy Change. Effective with wages paid on or after January 1, 2009, the IRS will require
SMLLCs and QSubs to file and pay employment taxes and excise taxes at the entity level,
under the entity name and EIN. The IRS’ guidance under IRB 2007-39 includes taxes
collected under FUTA. The IRS believes that the rule change will improve the
administration of the tax law(s) and simplify compliance by eliminating the filing option for
owners of disregarded entities. Disregarded entities and owners of such entities may
continue to use the procedures permitted by IRS Notice 99-6, for wages paid prior to
January 1, 2009.
5. State Preparation for Changes. States need to review their procedures for certifying state
UC payments for FUTA. States that currently require UC reporting and payment at the LLC
and QSub level do not need to take any action. However, states that currently require
consolidated UC reporting and payment under a single owner-member EIN, or provide
employers the option to report and pay at either level, must prepare for the 2009 changes
because their state reporting requirements would conflict with FUTA reporting
requirements. Those states are encouraged to begin working on changes to their reporting
requirements and tax accounting systems as soon as possible to ensure consistency with the
IRS FUTA requirements that are effective for wages paid on or after January 1, 2009.
States will need to develop a method to certify state UC payments to the IRS at the entity
(SMLLC or QSub) level.
6. Examples. The following two examples are provided to explain the proper treatment for
FUTA reporting for wages paid on or after January 1, 2009.
A. Example 1. Mr. Smith owns LLC I, an entity that has employees and pays wages.
LLC I is subject to the provisions of subtitle C of the Internal Revenue Code (IRC)
and its implementing provisions at 26 CFR subchapter C, Employment Taxes and
Collection of Income Tax at Source, Parts 31 through 39. Accordingly, LLC I is
liable for Federal income tax withholding, Federal Insurance Contributions Act
(FICA) taxes and FUTA taxes. LLC I must file under its name and EIN Form 940
(Employer’s Annual FUTA Return), Form 941 (Employer’s Quarterly Employment
Tax return), as well as W-2 (Wage and Tax Statement) and make timely employment
tax deposits. Mr. Smith is self-employed for purposes of subtitle A, chapter 2 of the
IRC, Tax on Self-Employment Income.
B. Thus, under 26 CFR 1.1401, Mr. Smith is subject to tax on his net earnings from
self-employment with respect to LLC I’s activities. Mr. Smith is not an employee of
LLC I for purposes of subtitle C of the Code (Employment Taxes). The following
two examples describe situations where a state will/will not need to modify its
systems.
i. State X requires SMLLCs to file and pay SUTA taxes at the entity (LLC I)
level. Since state X’s policy aligns with IRB 2007-39, the state FUTA
certification process will not require changes.
ii. State Z allows or requires SMLLCs to file and pay SUTA taxes under Mr.
Smith’s EIN. State Z will need to develop a method to certify the SUTA
taxes under the SMLCC (LLC I) EIN for the annual FUTA certification.
C. Example 2. Mr. Smith entirely owns LLC I, LLC II, and LLC III. Each LLC has
employees and pays wages. LLC I, LLC II, and LLC III are subject to the
provisions previously cited in Example 1. Accordingly, each LLC is separately
liable for Federal income tax withholding, FICA and FUTA taxes. Each LLC must
file separately, Forms 940, 941, W-2, and make timely employment tax deposits
under the individual LLC name and EIN. Mr. Smith is self-employed for purposes
of subtitle A, chapter 2 of the IRC, Tax on Self-Employment Income. Thus, under
26 CFR 1.1401, Mr. Smith is subject to tax on his net earnings from self-
employment with respect to the combined activities of all three LLCs. Mr. Smith is
not an employee of any of the LLCs for purposes of subtitle C of the Code
(Employment Taxes).
i. State X requires SMLLCs to file and pay SUTA taxes at the entity, individual
LLC level. Since state X’s policy aligns with IRB 2007-39, the state FUTA
certification process will not require changes.
ii. State Z allows or requires SMLLCs to file and pay SUTA taxes under Mr.
Smith’s EIN. State Z will need to develop a method to certify the SUTA
taxes under each SMLLC EIN for the annual FUTA certification.
7. Action. State Administrators are to provide this advisory to appropriate staff so they may
determine whether they need to modify state reporting requirements to coordinate with the
revised FUTA reporting requirements, which become effective January 1, 2009.
8. Inquiries. States should contact the appropriate Regional Office for additional information.
9. Attachment. Flowcharts to describe examples of compliant and non-compliant situations for
both single and multiple SMLLCs
Attachment I
Example 1 i - One SMLCC – FUTA Compliant
State X Mr. Smith
LLC I
Employees
Under LLC 1 EIN Under Mr. Smith’s EIN
Employees’ Self-Employment for
SUTA, FUTA, FICA, Federal Taxes
Federal W/H
Example 1 ii - One SMLCC – NOT FUTA Compliant
State Z Mr. Smith
LLC I
Employees
Under LLC 1 EIN Under Mr. Smith’s EIN
Employees FICA, FUTA Reconciliation Employees’ SUTA &
Federal W/H, FUTA Problem Self-Employment for
Federal Taxes
Example 2 i- Three SMLCCs – FUTA Compliant
State X Mr. Smith
LLC I LLC II LLC III
Under Mr. Smith’s EIN
Self-Employment for
Federal Taxes
Employees Employees Employees
Under LLC I EIN Under LLC II EIN Under LLC III EIN
Employees’ Employees’ Employees’
SUTA, FUTA, FICA, SUTA, FUTA, FICA, SUTA, FUTA, FICA,
Federal W/H Federal W/H Federal W/H
Example 2 ii- Three SMLCCs – NOT FUTA Compliant
State Z Mr. Smith
LLC I LLC II LLC III
Employees Employees Employees
Under LLC 1 EIN Under LLC II EIN Under LLC III EIN
Employees’ FUTA, Employees’ FUTA, Employees’ FUTA,
FICA, Federal W/H FICA, Federal W/H FICA, Federal W/H
FUTA Reconciliation
Problem
Under Mr. Smith’s EIN
Employees’ SUTA &
Self-Employment for
Federal Taxes
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