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Pennsylvania Discusses Withholding for Nonresidents – Tax & Accounting Blog

Pennsylvania advises on withholding for Pennsylvania source nonemployee compensation, business income and lease payments. Beginning January 1, 2018, Pennsylvania requires withholding for some payors of Pennsylvania source income and lessees of Pennsylvania real estate to nonresidents. The legislation also requires that a copy of federal Form 1099-MISC be filed with Pennsylvania.

Withholding of Nonemployee Compensation and Business Income

Anyone that must file a federal Form 1099-MISC with the Department of Revenue is required to withhold on certain payments of:

  • nonemployee compensation; or
  • business income.

Withholding is required when such income is Pennsylvania source income. Further, the payment must be made to:

  • a nonresident individual; or
  • a pass through entity with a nonresident member.

However, withholding is optional if the payee received less than $5,000.

The amount withheld is the amount equal to the Pennsylvania personal income tax rate.

Requirements and Responsibilities for Withholding Payors

In addition, payors required to withhold on these payment must:

  • apply for a 1099-MISC withholding account by completing a PA-100 Pennsylvania Enterprise Registration Form electronically;
  • electronically file quarterly withholding returns and annual reconciliations with the Department via e-TIDES; and
  • electronically remit the withheld monies via e-TIDES.

Finally, payors required to withhold are liable for:

  • withheld taxes in the same manner as employers withholding employee compensation; and
  • taxes not withheld in the same manner as employers withholding employee compensation.

Nonemployee Compensation

A payment is nonemployee compensation if it is made to:

  • someone who is not your employee; and
  • for services in the course of your trade or business.

Nonresidents Receiving Pennsylvania Source Income

Nonresidents subject to Pennsylvania withholding must are required to file a copy of their federal Form 1099-MISC with their Pennsylvania tax return.

Withholding on Some Lease Payments

In addition, anyone that leases Pennsylvania real estate from a nonresident lessor in the course of their trade or business must withhold on the lease payments.  The amount withheld is the amount equal to the personal income tax rate.

Withholding is optional for amounts under $5,000 annually.

Lease payments include:

  • rents;
  • royalties;
  • bonus payments;
  • damage rents; and
  • other payments made under the lease.

Lessees that withhold from a lessor are required to:

  • apply for a 1099-MISC withholding account by completing a PA-100 Pennsylvania Enterprise Registration Form electronically;
  • electronically file quarterly withholding returns and annual reconciliations with the Department via e-TIDES; and
  • electronically remit the withheld monies via e-TIDES.

In addition, lessees that withhold are liable for:

  • withheld taxes in the same manner as employers withholding employee compensation; and
  • taxes not withheld in the same manner as employers withholding employee compensation.

Federal Form 1099-MISC Filing Obligations

Beginning in 2018, anyone required to withhold on payments of Pennsylvania-source income to a resident or non-resident individual, partnership or single member limited liability company is required to file a copy of the Federal Form 1099-MISC with:

  • the Department by January 31 of the next year; and
  • the payee by January 31 of the next year.

If the payor or lessee must electronically file Pennsylvania employer withholding, the Form 1099-MISC also must be filed electronically.

Informational Notice Personal Income Tax 2017-01, Department of Revenue, December 14, 2017, ¶204-613

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Author: CCHTaxGroup

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