Disregarded entities and Form W-9
One concept explains the most common error on this form. A disregarded entity exists for state law and does not exist for federal income tax, so the W-9 reports the owner standing behind it.
Owner on Line 1, entity on Line 2
- What it is
- An entity ignored as separate from its owner for federal income tax purposes
- Most common example
- A single-member LLC with no tax elections
- Federal return
- None of its own; income appears on the owner’s return
- Line 1
- The owner’s name
- Line 2
- The entity’s name
- Line 3a
- The owner’s classification
- Part I
- The owner’s TIN, never the entity’s own EIN
What "disregarded" means
Two legal systems are at work here and they do not agree with each other. Under state law your single-member LLC is a real thing: it has a filing with the secretary of state, it can own property and sign a lease, it stands between your personal assets and the business’s creditors. Under federal income tax law the IRS looks at a one-member LLC that has made no election and declines to treat it as separate from its owner. The income is the owner’s income, the deductions are the owner’s deductions, and there is no separate return for the agency to look at. Disregarded means invisible for that one purpose. The LLC is neither fake nor invalid; it simply has no independent existence in the income tax system. Form W-9 exists to identify a taxpayer, so it follows the tax view.
Which entities are disregarded
| Entity | Disregarded? |
|---|---|
| Single-member LLC, no elections filed | Yes. This is the default |
| Single-member LLC that filed Form 8832 for C corporation treatment | No. It is a corporation |
| Single-member LLC that filed Form 2553 for S corporation treatment | No. It is an S corporation |
| Multi-member LLC | No. It is a partnership by default |
| Sole proprietorship | Not technically a disregarded entity, since it is not an entity at all, but the W-9 treatment is identical |
| A qualified subchapter S subsidiary (QSub) | Yes, disregarded and treated as part of its S corporation parent |
| A single-member LLC owned by a corporation | Yes, and the corporation is the taxpayer to report |
| A grantor trust reporting under the grantor | Treated similarly in effect. Detail |
The entries, and why
A single-member LLC owned by a C corporation puts the corporation on Line 1, checks C corporation on Line 3a, and enters the corporation’s EIN in Part I. If a partnership owns it, the partnership goes on Line 1 and the Partnership box is checked. Disregarded entities always report their owner, whoever that turns out to be.
Why the IRS insists on this
An information return has to be matchable. When your client files a 1099, the IRS pairs the name and TIN on it against its own records, then goes looking for that income on a tax return. Put an LLC EIN on the form and the search runs against a number that never files an income tax return, because a disregarded LLC does not file one. So the payment looks as though it was reported to a taxpayer who does not exist. Meanwhile the same money, sitting on your personal return under your own SSN, looks unsupported by any 1099 at all. Two halves of one payment, neither able to find the other. The rule about whose number goes in Part I exists to keep the halves together.
A CP2100 notice to your client, a B notice to you, 24% backup withholding once the correction cycle runs out, and potentially an IRS letter to you about income the agency cannot match. All from one plausible-looking entry in Part I. How the cycle works
So what is a disregarded LLC EIN for?
- An LLC with employees needs its own EIN to file employment tax returns.
- Excise taxes, which are imposed on the entity itself.
- Most banks will not open a business account without one.
- Certain state filings and licenses.
- Keeping your SSN out of non-1099 contexts, such as vendor portals.
None of these makes it the right entry in Part I of a Form W-9.
If you already sent the wrong version
Complete a corrected W-9
Owner on Line 1, LLC on Line 2, first box on Line 3a, owner TIN in Part I. Sign and date with today’s date.
Ask the payer to replace the old one
A one-line note is enough. Accounts payable teams see this weekly.
Ask whether a 1099 has already gone out
If so, the payer needs to file a corrected return. Raising it in the spring is far cheaper than discovering it via a notice.
Claim credit for any withholding
Amounts already withheld appear on your 1099 as federal income tax withheld and are credited on your return. Detail
Frequently asked questions
What does disregarded entity mean?
An entity that exists under state law but is ignored for federal income tax purposes. Its income and deductions are treated as those of its owner, and it files no federal income tax return of its own.
Is a single-member LLC always disregarded?
Unless it has elected otherwise. Filing Form 8832 for C corporation treatment or Form 2553 for S corporation treatment makes it a separate taxpayer, at which point it is no longer disregarded.
My disregarded LLC has an EIN. Why can I not use it?
Because Part I asks for the TIN of the taxpayer on Line 1, and the taxpayer is the owner. The LLC EIN is real and is used for payroll and banking; it is simply not the number the 1099 should carry.
Are grantor trusts disregarded?
Not in the same technical sense, but the practical effect on a W-9 is similar: a grantor trust reporting under the grantor TIN reports the grantor. Detail
Does being disregarded remove liability protection?
Limited liability is a matter of state law, and federal tax classification does not touch it. The two systems are answering different questions.
General information, not tax advice. This page explains a federal tax form in plain English. It is not legal, tax, or accounting advice, and W9Form.org is not affiliated with the IRS. Verify everything against the official Form W-9 page on IRS.gov and speak to a licensed professional about your own situation. How we source and review these pages.