H2R CPA Blog

New PA Income Tax Withholding Requirement for Non-Residents

by Rick Tonarelli, CPA, Tax Senior Manager

Effective January 1, 2018, Pennsylvania requires payors of certain PA source income to withhold PA income tax from such payments. The withholding pertains only to non-employee compensation and business income (including royalties and bonuses) paid to non-resident individuals (or disregarded entities with a non-resident owner), for which a Federal 1099-MISC will be filed. Withholding of tax is required for payments of $5,000 or more annually, and is optional on payments of less than $5,000.
In general, governmental payors are exempt from this requirement, including The United States government, the Commonwealth of Pennsylvania, their agencies, instrumentalities, and any political subdivisions of Pennsylvania.
A payment is considered “non-employee compensation” if it is made to: (i) someone who is not your employee; and (ii) for services in the course of your trade or business.
Further, lessees of PA real estate making “lease payments” to non-resident lessors are also required to withhold personal income tax on such payments. Residential rental payments are exempt from the withholding requirement.
The withholding amount is equal to the specified rate, which is currently 3.07%, multiplied by the gross amount paid.
In circumstances where the payor is unsure of the total amount of annual payments, it is recommended to withhold and remit PA income tax on all payments to the payee.
Payors that are required to withhold must do the following:

  1. For those who do not have currently have an employer withholding account, apply for a 1099-MISC withholding account by completing  a PA-100 Pennsylvania Enterprise Registration Form electronically at: www.pa100.state.pa.us; (those who already have an employer withholding account for payroll can use the same account for 1099-MISC withholding and need not register for a separate/new account);  
  2. Electronically file quarterly withholding returns and annual reconciliations with the Department via e-Tides;  
  3. Electronically remit the monies withheld via e-Tides;

The payor is 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 on 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),
The payor is liable for withheld taxes, and for taxes not withheld, in the same manner as employers withholding employee compensation. They are also required to file reconciliation returns for each quarter and the annual withholding reconciliation statement (REV-1667 R) with the 1099-MISC statements for each payee.
Your payroll service provider should also be able to assist you with the withholding remittance and the satisfaction of the filing requirements.
Contact H2R CPA at 412-391-2920 or team@h2rcpa.com for additional details or if you need assistance with notifying your non-resident vendors of the new 2018 PA income tax withholding requirement. Our tax team members would be happy to help.