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New PA Withholding Tax Requirements to Non-Residents

Act 43 of 2017 (“Act”) created new PA withholding tax requirements for certain payors of PA source income and lessees of PA real estate to non-residents.  According to the Act, effective January 1, 2018, an amount equal to a rate pursuant to 72 P.S. §7302 (which is currently 3.07%), is required to be withheld from the following types of payments:

  • Payments of Pennsylvania source non-employee compensation or business income that are reported on Federal Form 1099-MISC to non-resident individuals or disregarded entities with a non-resident member; and
  • A lessee of Pennsylvania real estate who makes a lease payment in the course of a trade or business to a non-resident lessor.

A payment is considered to be non-employee compensation if it is a payment made to someone that is not an employee of the payor and is for services in the normal course of the payor’s trade or business.  Examples of payments considered to be lease payments are payments for rent, royalties, bonuses and other types of payments that are made under a lease agreement.

Please note that the PA withholding tax requirement is optional for payors and lessees if total payments during the year are less than $5,000.

In addition, the Pennsylvania Department of Revenue has stated that the Act provides that, payors and lessees have been granted a “grace period” and will not be subject to an assessment if they fail to withhold for a period ending prior to July 1, 2018. However, if a tax is withheld during this time period, it must be remitted as required.

Any payor that is required to withhold must apply for a Form 1099-MISC withholding account by completing a Form PA-100, Pennsylvania Enterprise Registration Form.  This can be done electronically at www.pa100.state.pa.us.

Payors and lessees must withhold and remit taxes in accordance with the following thresholds:

  • Semi-weekly if total withholding is $5,000 or more per quarter;
  • Semi-Monthly if total withholding is greater than $999.99 but less than $5,000 per quarter;
  • Monthly if total withholding is $300 or more but less than $1,000 per quarter; or
  • Quarterly if total withholding is under $300 per quarter.

Withum’s Tax Services Group recommends a gap analysis assessment which includes:

  • Form 1099-MISC review;
  • Accounts payable vendor review; and
  • Form W-9 review.

If you have any questions on the new PA withholding tax requirements, please contact your Withum tax advisor or fill out the form below and we’ll reach out to you.

 

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