In 2017, Act 43 created a tax withholding obligation for certain payors of Pennsylvania‐source income and lessees of Pennsylvania real estate to out of state residents. The Act required anyone that makes certain payments after January 1, 2018 to withhold 3.07% from such payments and remit the withholding via the state’s online filing system, e-Tides. Payors must file the related 1099‐MISC forms with the PA Department of Revenue in January of the following year. Please review the following guidelines to make sure you are complying.

Applies if all of the following are true:

• A payor makes payments of non-wage income from Pennsylvania sources for the following
  • Non-Employee Compensation
    • Someone who is not your employee
    • For services in the course of your trade or business
  • Lease Payments
    • Payment includes, but is not limited to, rents, royalties, bonus payments, damage rents, and other payments made pursuant to a lease
    • A lessor includes only individuals, estates, and trusts
• Payments will exceed $5,000 per payee in the calendar year
• The payment is made to a resident of another state

Withholding on payments typically applies to:

• Individuals who do not live in Pennsylvania
• Business entities that do not have a permanent place of business in Pennsylvania
• Estates whose decedent was not a Pennsylvania resident at the time of their death
• Trusts with no Pennsylvania resident settlors

Does NOT apply to:

• Wages paid to employees
• Payments for goods and materials
• Sales of real estate located outside of Pennsylvania
• Residential rental agreements or residential lease payments

Not required when:

• The payee is a corporation
• The payee is a partnership or multi- member liability company
• The payee is a nonresident with no PA source income
• The payee is a disregarded entity owned by a corporation or partnership

When to start withholding:

• Total payments of less than $5,000
  • Withholding is optional
  • If the payor is unsure of the total amount of payments that will be made during the year, the Department encourages them to withhold and remit income tax from all payments made
• Payments of more than $5,000
  • The payor should attempt to withhold the total amount of tax due for the total annual compensation on any subsequent payments
  • However, the Department is not expecting the payor to withhold and remit tax on a payment that is greater than the payment to the payee

Account number options:

• Use current Employer withholding account
  • Combine payroll tax withholdings with non- resident withholdings
  • Deposit schedule will follow Employee withholding
• Register for an additional new 1099-MISC withholding account
  • Online PA-100
  • www.pa100.state.pa.us
  • Deposit schedule is based on the amount withheld from payments

Annual 1099-MISC filing requirements:

• All 1099-MISC forms are due by January 31st of the following year, even if no tax was withheld
• 1099-MISC forms - No tax withheld
  • Copy of forms only
  • Can remit by paper
• 1099-MISC forms - Tax was withheld
  • Must file Form REV-1667 (Annual Reconciliation)
  • Remit via e-Tides or by paper

Failure to comply:

• If the payor fails to withhold and remit the required Pennsylvania Personal Income Tax
  • The Department can collect the Personal Income Tax from the payor
  • If the payee pays the tax, the Department can collect interest and penalties from the payor
  • Assessments will be added after July 1, 2018

More information:

• PA Departments Website - Nonresident Withholding
  • 1099-MISC Withholding Exemption Certificate for vendors
    • Form Rev-1832
    • Keep for 5 years or until new form is received
    • Best practice to send with Form W-9 to all vendors