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 must also file the form with the Pennsylvania Department of Revenue (Department) and is now required to withhold Pennsylvania tax from such payments. These payments include non-employee compensation, rents and royalties.
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.
Companies within the transportation industry should exercise caution before remitting state withholding on certain Independent contractors. Independent contractors that are merely transporting freight through Pennsylvania are generally not subject to withholding requirements and appear to be exempt from the Act’s withholding provisions. This is due to such payments being exempted from Federal Form 1099-MISC filing under the Federal Regulations. This exception applies to payments for transportation services including truck, rail, ship and air freight services.
Payors that are required to withhold must do the following:
Apply for a 1099-MISC withholding account by completing a PA-100 Pennsylvania Enterprise Registration Form electronically at: www.pa100.state.pa.us;
Electronically file quarterly withholding returns and annual reconciliations with the Department via e-TIDES;
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.
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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.