New PA 1099-MISC Withholding Requirements

Effective July 1, 2018 (delayed from January 1), any Pennsylvania company that pays non-employee compensation or business income to a non-resident or disregarded entity (with non-resident members) AND is required to file Federal Form 1099-Misc with the IRS, must now withhold PA Personal Income Tax at a rate of 3.07% from such payments.

The new withholding requirement is optional when the amount paid is less than $5,000 annually. However, if unsure, the Department of Revenue encourages the tax be withheld and remitted on all payments.

To comply with this new requirement, Payors must apply for a new or additional 1099-MISC Withholding Account by completing a PA-100 Enterprise Registration Form. An additional Account Number will be assigned, through which all deposits, quarterly returns and 1099-MISC should be filed.

Payors must file quarterly returns and an annual reconciliation for each payee using the e-TIDES system, and payments of $1,000 or more must be made electronically through e-TIDES. Beginning in 2019, returns may need to be filed more often, based on total withholding amounts.

A great deal of controversy surrounds this new requirement. It is currently being challenged in Commonwealth Court and a bill has been introduced to streamline and clarify the issues raised regarding administrative burdens on businesses.

PROXUS will continue to monitor this situation and will provide relevant updates as they become available.  

Tags: Tax, Payroll