01 February 2018 Pennsylvania now requires income tax withholding on nonemployee compensation paid to nonresidents Under legislation enacted in late 2017 (2017 Act 43) and effective January 1, 2018, certain payers of nonemployee compensation (and lessees of Pennsylvania real estate) are required to withhold personal income tax from payments made to certain nonresidents of Pennsylvania. Individuals and businesses paying $5,000 or more in Pennsylvania-source nonemployee compensation or business income to a nonresident individual or disregarded entity that has a nonresident member, if required to file a federal Form 1099-MISC with the Pennsylvania Department of Revenue, are required to withhold, remit and report state personal income tax from such payments at the rate currently in effect for the year (3.07% for calendar year 2018). Generally, a payment is considered "non-employee compensation" if it is made to: (i) someone who is not an employee; and (ii) for services in the course of a company's trade or business. Withholding is optional for payers that will pay less than $5,000 annually to such an individual or entity. Payers that are unsure if the total amount that will be paid to a payee will equal or exceed $5,000 annually are encouraged by the Department to withholding and remit income tax from all payments to the payee. In general, governmental payers, including Pennsylvania's State System of Higher Education and its institutions, are exempt from the requirement of withholding on nonemployee compensation and business income. For more information on this new requirement, see the Department's 1099-MISC fact sheet and Notice 2017-1, issued January 19, 2018. Anyone leasing Pennsylvania real estate who makes a lease payment in the course of their trade or business to a non-resident lessor is also required to withhold state income tax from such payments if the lessee is paying a nonresident lessor $5,000 or more annually. A lessor includes only individuals, estates and trusts. A lease payment includes, but is not limited to, rents, royalties, bonus payments, damage rents and other payments made pursuant to a lease. In general, lessees that are governmental entities do not conduct "trade or business" and therefore are exempt from this requirement. Payers required to withhold under the above circumstances must apply electronically for a 1099-MISC withholding account with the Department by completing a Form PA-100, Pennsylvania Enterprise Registration. Payers that are already registered for an employer withholding account that do not want to report the 1099-MISC separately do not have to complete a new registration. However, employers that want to report the 1099-MISC separately must register for a new 1099-MISC withholding account. Questions on registering for a 1099-MISC account may be directed to the Department's Tax Registration Office at +1 717 787 3653. As with employer-withheld state income tax, payers are required to withhold and remit withheld income taxes according to the following schedule: — Semiweekly. If total withholding is $5,000 or greater per quarter ($20,000 per year). Taxes are due on the Wednesday following the pay dates for employers whose paydays fall on a Wednesday, Thursday or Friday; and on the Friday following the pay dates for employers whose paydays fall on Saturday, Sunday, Monday or Tuesday. — Semimonthly. If total withholding is $1,000 to $4,999.99 per quarter, the taxes are due within three banking days of the close of the semi-monthly period. — Monthly. If total withholding is $300 to $999 per quarter, the taxes are due the 15th day of the following month. — Quarterly. If total withholding is under $300 per quarter, the taxes are due the last day of April, July, October and January. Initially, a new 1099-MISC withholding account will be established to remit on a quarterly basis and will then change to an annual payment frequency based on amounts withheld. Withholding tax payments, quarterly returns, and annual reconciliations must be submitted electronically to the Department through the Department's online business tax filing system (e-TIDES). As in prior years, payers of nonemployee compensation must file federal Forms 1099-MISC with the Department each year by January 31 (for calendar year 2018, the forms are due by January 31, 2019). Payers must also provide a Form 1099-MISC to each payee by January 31. Payers filing 250 or more Forms 1099-MISC are required to electronically file with the Department through the e-TIDES system. A payer filing less than 250 Forms 1099-MISC may file electronically or on paper. In either case, the Forms 1099-MISC are due by January 31. The Form 1667R annual withholding statement must be filed electronically with the Department by January 31. For more information on filing Forms 1099-MISC and 1667R, see the Department's website. Document ID: 2018-0238 |
