New Nonresident Withholding Requirements

Feb 28, 2018 | Member News

Beginning in 2018, Act 43 of 2017, imposes a 3.07% withholding obligation on certain payments of nonresident nonemployee compensation and business income and on certain lease payments to nonresidents.

 Withholding on Nonemployee Compensation and Business Income

 This withholding requirement applies to anyone that:

1.       Makes payments for Pennsylvania sourced nonemployee compensation or business income to a nonresident individual or disregarded entity with a nonresident member, and

2.       Is required to file a form 1099 with the Pennsylvania Department of Revenue.

 Pennsylvania sourced income is any income for work done or services performed in Pennsylvania. A disregarded entity is an entity that is disregarded for tax purposes. The most common example is an LLC with one owner/member. The LLC does not have a separate filing obligation and all income is reported on the owners return.

 If the dealership makes payments to a nonresident and the work or services are performed outside of Pennsylvania, the withholding obligation does not apply.

 If qualifying payments do not exceed $5,000, the withholding obligation is optional.

 If the amount that will be paid during the year is unknown, the Pennsylvania Department of Revenue recommends withholding beginning with the first payment.


Courtesy of PAA Bulletin No. 4, 2/22/2018