If you own or operate a business in Pennsylvania, as you gear up for tax filing, know that the Pennsylvania Department of Revenue just released guidance on new withholding and 1099 filing obligations, beginning in 2018. Payers of the 1099-MISC income who are subject to the withholding provisions will not be penalized for a failure to withhold for a period ending prior to July 1, 2018. However, when tax is withheld, it must be filed and remitted as required by law. This applies to payments made to nonresident lessors and nonresident independent contractors. Read on for details on this change and for key steps to prepare you for filing next tax season.
The Gist of the Change. Withholding is mandatory for payments totaling over $5,000 for the year and optional for amounts below that threshold.
Rules for the frequency of remittance based on the dollar amount of withholding. 1099-MISC withholding can be combined with employment tax withholding, but if you want to report the 1099-MISC separately, you will have to register for the withholding account by completing a PA-100 Pennsylvania Enterprise Registration Form.1
Withholding on nonemployee compensation or business income. This applies only to payments to a non-resident individual or to a disregarded entity that has a non-resident member. Lease payments apply only to individuals, estates and trusts. It appears that payments to corporations, S corporations and partnerships would not be subject to withholding, but the payer would still be obligated to file 1099’s for payments to anyone other than these entities. Additionally, there is a quarterly reconciliation filing requirement.
- Review your general ledger accounts for rent and subcontract services including accounts such as repairs and maintenance, legal and professional, consulting, etc., to determine which payments may be subject to withholding
- Check with your payroll service companies to determine what services are being offered for this new reporting and remittance requirement
- Inform your tax advisor if you are already set up on "E-Tides," Pennsylvania’s electronic filing and remittance system, for other taxes Your advisor may be able to save filing time in light of these withholding changes
- While preparing and reviewing 1099’s to be filed for 2017, be alert to 1099’s being issued to nonresident lessors and subcontractors that may be subject to withholding in 2018
- Confirm whether the payee is a single-member LLC or an LLC being taxed as a partnership or an S corporation. This should be done using the newest form W-9, which can be downloaded at IRS.gov. This form provides checkboxes for the type of entity on line 32
- Withholding is only required for payments in excess of $5,000, but this is the cumulative amount for the year. Therefore, withholding may need to start before hitting the $5,000 threshold
If you have any questions about Pennsylvania’s new 1099-MISC withholding tax requirements, contact Stuart Katz at SKatz@friedmanllp.com or 267-886-1742 or your Friedman LLP tax advisor.