Pennsylvania Tax Change

A new law was released by Pennsylvania last month that impacts 1099-filers.

Pennsylvania – Personal Income Tax – Withholding – non-employee compensation/lease payments:

Starting January 1, 2018, anyone that pays Pennsylvania-source non-employee compensation or business income to a non-resident individual or disregarded entity that has a non-resident member and is required to file a Federal Form 1099-MISC is required to withhold an amount equal to the tax rate of 3.07% from these payments.

Withholding is optional for payors paying a payee less than $5,000 annually, and government payors (with the exception of state owned and state affiliated universities) are generally exempt from the withholding requirements.

Taxpayers that are unsure of the total amount of payments that will be made to a payee are encouraged to withhold and remit tax from all payments to the payee. An individual, estate or trust leasing Pennsylvania real estate that makes a lease payment in the course of their trade or business to a non-resident lessor is also required to withhold an amount equal to the tax rate specified (currently 3.07%) from these payments.

Withholding is optional for lessees paying a non-resident lessor less than $5,000 annually, and taxpayers who are unsure of the total amount of payments that will be made to a non-resident lessor are encouraged to withhold and remit tax from all payments to the non-resident lessor. Lessees withholding tax are required to file a Federal Form 1099-MISC with both the lessor and the Department of Revenue showing the amount paid to them and the amount of the withholding. In addition, payors and lessees subject to these provisions are required to apply for a 1099-MISC withholding account by completing Form PA-100. Additional filing and reporting requirements apply.

Pennsylvania – Partnership – Withholding – non-employee compensation/lease payments:

Starting January 1, 2018, anyone that pays Pennsylvania source non-employee compensation or business income to a non-resident individual or disregarded entity that has a non-resident member and is required to file a Federal Form 1099-MISC is required to withhold an amount equal to the tax rate (currently 3.07% ) from such payments.

Withholding is optional for payors paying a payee less than $5,000 annually, and government payors (with the exception of state owned and state affiliated universities) are generally exempt from the withholding requirements. Taxpayers that are unsure of the total amount of payments that will be made to a payee are encouraged to withhold and remit tax from all payments to the payee,

An individual, estate or trust leasing Pennsylvania real estate that makes a lease payment in the course of their trade or business to a non-resident lessor is also required to withhold an amount equal to the tax rate (currently 3.07%) from these payments. Withholding is optional for lessees paying a non-resident lessor  less than $5,000 annually, and taxpayers who are unsure of the total amount of payments that will be made to a non-resident lessor are encouraged to withhold and remit tax from all payments to the non-resident lessor. Lessees withholding tax are required to file a Federal Form 1099-MISC with both the lessor and the Department of Revenue showing the amount paid to them and the amount of the withholding. In addition, payors and lessees subject to these provisions are required to apply for a 1099-MISC withholding account by completing Form PA-100. Additional filing and reporting requirements apply.