Wisconsin Tax Treatment of Disregarded Entities Update

In Wisconsin Tax Bulletin 156 (April 2008), the tax treatment of disregarded entities for income and franchise, sales and use, excise, and withholding taxes was discussed. A change in registration requirements regarding withholding that took effect on January 1, 2009, requires further comment.

For wages paid on or after January 1, 2009, a disregarded entity will automatically be considered an "employer" for purposes of federal withholding taxes. Wisconsin will follow this treatment. Thus, for wages paid on or after January 1, 2009, a single-owner entity that is disregarded as a separate entity under IRC sec. 7701 will be an "employer" for Wisconsin withholding tax purposes. As an "employer," a disregarded entity must obtain a Wisconsin employer identification number.

Effective immediately, new businesses that are disregarded must apply for a Wisconsin employer withholding number, not the owner, unless the owner also has employees.

If a disregarded entity's owner was registered as the employer of the disregarded entity's employees, it is not necessary that action be taken at this time to change the registration. The department is developing procedures to change these registrations. Those procedures will be communicated to affected employers later in the calendar year, but well before it is time to file the annual withholding tax reconciliation (Form WT-7) and Forms W-2.

If you have questions, please call the Practitioner Only Line at 608-261-5199 or email to DORtaxpractitioners@revenue.wi.gov

Last updated February 13, 2009