New PA Withholding Requirement on Royalties, Bonus Payments, Rents and other Business Income

Under Act 43 of 2017, anyone that pays Pennsylvania-source non-employee compensation or business income to a non-resident individual or disregarded entity that has a non-resident member and is required to file a Federal Form 1099-MISC with the Pennsylvania Department of Revenue (Department) is now required to withhold amounts from such payments. These payments include lease payments, such as rents, royalties, bonus payments, damage rents and other payments related to a lease.

The withholding amount is equal to the rate specified at 72 P.S. § 7302 (currently, 3.07%). The withholding is optional for payments to a payee of less than $5,000 annually. Government payors are exempt from the withholding requirement; however, state-owned and state-affiliated universities are not excluded.

When considering the reporting of working interest in oil and gas wells, the question arises of whether Pennsylvania withholding is required on the gross income from the well, as reported on the Form 1099, or the net amount paid to the individual after property taxes, gathering expenses, and other operating expenses are deducted. The law enacted by Act 43 and Informational Notice Personal Income Tax 2017-01 provide no guidance on the issue. To gain further clarification, Schneider Downs has reached out to Pennsylvania Chief Counsel and will provide an update once received.

For additional information on withholding and filing, see below.

 Payors that are required to withhold must do the following:

1. Apply for a 1099-MISC withholding account by completing a PA-100 Pennsylvania Enterprise Registration Form Electronically at: www.pa100.state.pa.us;

2. Electronically file quarterly withholding returns and annual reconciliations with the Department via e-TIDES;

3. Electronically remit the withheld monies via e-TIDES;

Payors are required to withhold and remit taxes on income according to the following schedule:

Quarterly – If total withholding is under $300 per quarter, the taxes are due the last day of April, July, October, and January.

Monthly – If total withholding is $300 to $999 per quarter, the taxes are due the 15th day of the following month.

Semi-Monthly – If total withholding is $1,000 to $4,999.99 per quarter, the taxes are due within three banking days of the close of the semi-monthly period.

Semi-Weekly – If total withholding is $5,000 or greater per quarter ($20,000 per year).

Additionally, payers must file reconciliation returns for each quarter and the annual withholding reconciliation statement (REV-1667 R) with the 1099-MISC statements for each payee. Payors will be liable for taxes not withheld in the same manner as employers withholding employee compensation.  

Payees having tax withheld must also file a copy of the 1099-MISC with their Pennsylvania tax return.

Please visit the Our Thoughts On...Energy and Resources blog for more articles, or contact a Schneider Downs tax advisor if you have any questions.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

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.

© 2024 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
2024 Energy and Natural Resources Legislative and Regulatory Update
Reporting Responsibilities Under Federal Grants for Orphaned Well Plugging and Reclamation
Postcard from the AADE Operator’s Forum
An Increase in LNG Exports Could Lead to Higher Seasonal Price Volatility
Potential Accounting Changes for Environmental Credits
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us
Pittsburgh

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×