In 2012, Pennsylvania adopted 1099 reporting requirements for payers of certain non-employee compensation. As part of the 2017-2018 budget process, Pennsylvania expanded the 1099 reporting requirement to include withholding on payments made to non-resident individuals and disregarded entities that have non-resident members.
Beginning on January 1, 2018, payers are now required to withhold Pennsylvania Personal Income Tax at the current rate of 3.07 percent for payments to non-residents, equal to or greater than $5,000. If you are unsure about the total amount of payments to be made to the non-resident, we recommend withholding the appropriate tax on all payments. Using this approach will allow the payer to avoid under-withholding issues if the total payments meet or exceed the $5,000 withholding threshold. It should be noted that, once the $5,000 threshold is met, all of the income is subject to the withholding requirement.
The following payments are subject to the new withholding requirement:
- Non-employee compensation and business income: Payments made directly to a non-resident individual or to a disregarded entity that has a non-resident individual member are subject to the 1099 MISC withholding.
- The payment must be made to someone who is not an employee and has performed services for your business.
- Certain lease payments: Payments made to non-resident lessors for the rental of Pennsylvania real estate are subject to withholding. Lessees should consider all payments made pursuant to a lease of Pennsylvania real estate to be subject to the withholding requirement. Unlike non-employee compensation, a lessor includes only individuals, trusts, and estates. It does not appear to include payments made to lessors that are disregarded entities.
What do you need to do if you have withheld tax or expect to withhold tax from a payee?
- You will need to register for a 1099 MISC withholding account through e-TIDES by completing or amending your current Pennsylvania registration;
- You will be required to file quarterly withholding returns electronically through e-TIDES using form REV-1667 R;
- You will be required to electronically remit on a semi-weekly, semi-monthly, monthly, or quarterly basis the taxes withheld; and
- You will be required to file an annual reconciliation through e-TIDES using form REV -1667 R.
How will you determine frequency for which taxes will be required to be remitted?
The remitting frequency is dependent upon the amount of total tax withheld. The thresholds for 1099 MISC remitting are as follows:
- Semi-weekly is required if total withholding is $5,000 or more per quarter;
- Semi-monthly is required if total withholding per quarter is at least $1,000 and less than $5,000;
- Quarterly remittances are due if the total withholding per quarter is at least $300 but less than $1,000; and
- Quarterly remittances are due if the total withholding per quarter is less than $300.
Additional Reporting Requirements
Beginning in 2018, all Pennsylvania sourced income is subject to the 1099 reporting requirements in Pennsylvania. The reporting requirement applies to all classes of income paid to resident and non-resident individuals, partnerships, and single member limited liability companies. (Note: Prior to 2018, the reporting requirement applied only to payments made pursuant to oil and gas leases.) If the payor is NOT required to file federal Form 1099 MISC with the federal government, then it is not subject to the PA reporting requirement.
The first reporting period for the expanded reporting requirement will be January 31, 2019.
If you have any questions about this information or would like to discuss this subject further, please do not hesitate to contact a member of Kreischer Miller's State and Local Tax group at 215.441.4600.
Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.