New 1099-MISC Withholding Tax Requirements Impacting PA Businesses

It may not be widely known, but businesses now have some additional Pennsylvania income tax withholding requirements of which you need to be aware.

BACKGROUND

On Oct. 30, 2017, Gov. Tom Wolf signed Act 43 of 2017. The new law made several changes which were expected to generate revenue to fund the 2017-2018 budget and future budgets. Included was a tax withholding provision that previously did not exist.

Act 43 requires anyone who pays nonemployee compensation and business income to nonresident individuals (or a disregarded entity that has a nonresident member) and is required to file a federal Form 1099-MISC with the Pennsylvania Department of Revenue (DOR), to withhold Pennsylvania income tax from payments made. Withholding is optional when the amount paid is less than $5,000 annually.

The withholding provision also applies to lease or rental payments made in the course of a trade or business to a nonresident lessor who is paid $5,000 or more annually. Lease payments include rents or any payments pursuant to a lease and royalties.

The result of this provision is that an additional burden has been placed on businesses in Pennsylvania. Because of the complexity, the Department of Revenue agreed to postpone assessing penalties for noncompliance until July 1, 2018.

WHAT DOES THAT MEAN FOR ME?

The department expects that payors/lessors will file the related 1099-MISC, with boxes 16 and 17 completed, with the department timely in January 2019.

Payors that withhold from a payee are required to do the following:

– Any payor/lessee required to withhold must apply for a 1099-MISC withholding account by completing a PA-100 Pennsylvania Enterprise Registration Form electronically at pa100.state.pa.us.

– If you already have an employer withholding account and you do not want to report the 1099-MISC separately, you do not have to complete a new registration. However, if you want to report the 1099-MISC separately, you must register for a 1099-MISC withholding account.

HOW OFTEN MUST I REMIT 1099-MISC WITHHOLDING TAX RETURN and PAYMENT?

For 2018, the 1099-MISC withholding remittance must be done on a quarterly basis. These withholding returns are due on the last day of April, July, October and January, for calendar quarters ending the last day in March, June, September and December, respectively. However, for 2019, the payors must pay to the DOR the taxes withheld based on the amount the payor expects to withhold during a calendar year. Specifically, remittances are accelerated if total withholding exceeds identified dollar thresholds. For more information on filing returns and payments, and quarterly due dates, please visit www.revenue.pa.gov. or click here.

The new rules are difficult and complex and it is advised to contact your advisor for assistance. For more information on this topic, or to learn how KatzAbosch tax specialists can help, contact our team.

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