Change in Pennsylvania Form 1099MISC Withholding and Reporting Requirements

Robert Hagenow, CPA, MT

Principal, Maillie LLP

rhagenow@maillie.com

In 2017 Act 43 established additional withholding requirements on certain business conducted in Pennsylvania, as noted below.  As a result, starting January 1, 2018 anyone that makes the following payments is required to withhold from such payments applicable Pennsylvania Taxes at the prevailing tax rate which is currently 3.07% as indicated per 72 P.S. Section 7302:

- Any payments of Pennsylvania source non-employee compensation or business income to a non-resident individual or disregarded entity that has a non-resident member and is reported on a 1099-MISC
- A lessee of Pennsylvania real estate who makes a lease payment, in-the-course of a trade or business to a non-resident lessor.

It should be noted; the withholding requirement is optional for payors or lessees paying annually less than $5,000 per recipient.  If it is unclear what amounts will be paid during the year, Pennsylvania Department of Revenue suggests withholding be made on all applicable payments and the income tax be remitted timely.

The assessment for failure to withhold will not be assessed for any period ending before July 1, 2018.  However, in the event tax is withheld before this date, it must be properly reported and timely remitted as required. 

All payors and lessors effected by these new requirements for 2018 will need to timely file Form 1099-MISC, with boxes 16 and 17 completed with the Pennsylvania Department of Revenue in January 2019.