After hearing from taxpayers about the significant burden of complying with new Pennsylvania rules requiring personal income tax (PIT) withholding from non-resident service providers who receive IRS Forms 1099-MISC, the Pennsylvania Department of Revenue (DOR) delayed full implementation of the new rules until July 1, 2018.

Pennsylvania's 2017 tax law (described in our alert available here), requires PIT withholding by a business that has nexus with Pennsylvania and that makes trade or business payments totaling $5,000 or more during a calendar year to a nonresident individual or to a disregarded entity owned by a nonresident individual. Likewise, a Pennsylvania business that makes rent or royalty payments with regard to Pennsylvania property totaling $5,000 or more during a calendar year to a nonresident individual or to an entity that collects rents on behalf of a nonresident individual (including a disregarded entity owned by such an individual) is required to withhold PIT. If the payor fails to withhold and remit the required PIT, the DOR can collect the PIT from the payor.

The DOR recently announced that it will not assess unwithheld tax against any business that fails to withhold PIT from business payments made before July 1, 2018, even if the new withholding requirements otherwise would apply. However, the DOR also stated that (i) any tax that has been withheld must be remitted to the DOR as required by law, and (ii) businesses must timely file copies of IRS Forms 1099-MISC by January 31, 2019, (in accordance with procedures for reporting withheld 2018 PIT announced by the DOR in January and available here).

While the delay comes as welcome news to many Pennsylvania businesses, all businesses subject to the new requirements should act diligently to ensure that they can come into full compliance by July 1, 2018. This may require coordination between payroll departments, account payable departments, and other groups within the business and likely will take time and effort.

Ballard Spahr's Tax Group can assist with any questions about the new Pennsylvania withholding requirements or any other Pennsylvania tax issues. For more information, please contact Wendi L. Kotzen, co-leader of the Tax Group.


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Wendi L. Kotzen
Christopher A. Jones

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