In October of 2017, Pennsylvania Governor Tom Wolf signed into law Act 43 (“the Act”). Among the other provisions of this Act, companies are now required to withhold state tax on out-of-state independent contractors that perform services within Pennsylvania, as well as companies that make rent payments to non-resident individual lessors. This requirement adds a layer of reporting for many companies, and has led to some confusion within companies that have a long roster of independent contractors - particularly in the transportation industry.
The Act also adds an exclusion to reduce some of the administrative burden of this provision. Withholding state tax is optional when the annual payments are less than $5,000 annually. In circumstances where the payor is unsure of the total amount of annual payments, it is recommended to withhold and remit incomes tax on all payments to the payee. Companies are also required to electronically submit copies of Federal Form 1099-MISC to Pennsylvania for all individuals subject to state tax withholding.
Companies within the transportation industry should exercise caution before remitting state withholding on their independent contractors. Independent contractors that are merely transporting freight through Pennsylvania are generally not subject to withholding requirements and would be exempt from the Act’s withholding provisions. This is due to such payments being exempted from Federal Form 1099-MISC filing under federal regulations. Additional exceptions may also apply for companies in other industries. Contact Schneider Downs to receive a consultation on the potential impact of this Act’s new compliance requirements on your company.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.