Withholding on Non-Employee Compensation and Business Income
Beginning January 1st, 2018, anyone that pays Pennsylvania-source non-employee compensation or business income to a non-resident individual or disregarded entity that has a non-resident member, is required to file a Federal Form 1099-MISC and must withhold an amount equal to the tax rate specified at Pa. Stat. Ann. § 7302 from such payments. The current rate is 3.07%. Withholding is optional if payors are paying a payee less than $5,000 annually.
Taxpayers that are unsure of the total amount of payments that will be made to a payee are encouraged to withhold and remit tax from all payments to the payee. In addition, payors subject to these provisions are required to apply for a 1099-MISC withholding account by completing Form PA-100. Additional filing and reporting requirements also apply.
Please note, Government payors (with the exception of state owned and state affiliated universities) are generally exempt from the withholding requirements.
Generally, a payment is considered “non-employee compensation” if it is made to:
• someone who is not your employee; and
• for services in the course of your trade or business.
Payees having tax withheld who receive a copy of the Federal Form 1099-MISC from the payor are required to file a copy thereof with their Pennsylvania tax return.
Payors that withhold from a payee are:
1. Required to apply for a 1099-MISC withholding account by completing a PA-100 Pennsylvania Enterprise Registration Form electronically at: pa100.state.pa.us
2. Required to electronically file quarterly withholding returns and annual reconciliations with the Department via e-TIDES
3. Required to electronically remit the withheld monies via e-TIDES
4. Liable for withheld taxes in the same manner as employers withholding employee compensation
5. Liable for taxes not withheld in the same manner as employers withholding employee compensation
Payors are 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 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).
Payors 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.
More information can be accessed here: http://www.revenue.pa.gov/GeneralTaxInformation/TaxLawPoliciesBulletinsNotices/Documents/Informational%20Notices/info_notice_pit_2017-01.pdf
Thank you for choosing Paylocity as your Payroll Tax partner. Should you have any questions please contact your Paylocity Account Manager.
This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.