The Internal Revenue Service requires certain payments to unincorporated taxpayers to be reported annually on a Form 1099-MISC, Miscellaneous Income. These payments include payments to each person to whom a payment has been made in any tax year of:
- at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
- at least $600 in:
- rents;
- services performed by someone who is not your employee;
- prizes and awards;
- other income payments;
- medical and health care payments;
- crop insurance proceeds;
- cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish;
- generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
- payments to an attorney; or
- any fishing boat proceeds,
In addition, the form is to be used to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.
In an important Notice, the Commonwealth of Pennsylvania released guidance on December 14th relating to withholding on Pennsylvania source nonemployee compensation, business income and lease payments. Beginning January 1, 2018, Pennsylvania is imposing a withholding obligation for some payors of Pennsylvania source income and lessees of Pennsylvania real estate to nonresidents.
The legislation also expanded the rules requiring when a copy of Federal Form 1099-MISC must be filed with Pennsylvania.
Withholding of Nonemployee Compensation and Business Income
Anyone that pays Pennsylvania source nonemployee compensation or business income to a nonresident individual or “pass through business entity” with a nonresident owner or member and who is required to file a Federal Form 1099-MISC with the Department of Revenue is required to withhold an amount equal to the Pennsylvania personal income tax rate.
It is important to note that there is an exempted payment amount. Withholding is optional if the payee received less than $5,000.
A payment is “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, who have tax withheld and receive a copy of the Federal 1099-MISC, are required to file a copy with their Pennsylvania tax return.
Payors are:
- required to apply for a 1099-MISC withholding account by completing a PA-100 Pennsylvania Enterprise Registration Form electronically;
- required to electronically file quarterly withholding returns and annual reconciliations with the Department via e-TIDES;
- required to electronically remit the withheld monies via e-TIDES;
- liable for withheld taxes in the same manner as employers withholding employee compensation; and
- Liable for taxes not withheld in the same manner as employers withholding employee compensation.
Withholding on Some Lease Payments
Any person leasing Pennsylvania real estate making lease payments in the course of their trade or business to a non-resident lessor must withhold an amount equal to the personal income tax rate. Again, withholding is optional for paid amounts under $5,000 annually.
Lease payments include: rents, royalties, bonus payments, damage rents and other payments made pursuant to a lease. Lessees that withhold from a lessor are:
- required to apply for a 1099-MISC withholding account by completing a PA-100 Pennsylvania Enterprise Registration Form electronically;
- required to electronically file quarterly withholding returns and annual reconciliations with the Department via e-TIDES;
- required to electronically remit the withheld monies via e-TIDES;
- liable for withheld taxes in the same manner as employers withholding employee compensation; and
- liable for taxes not withheld in the same manner as employers withholding employee compensation.
Federal Form 1099-MISC Filing Obligations
Beginning in 2018, anyone that pays Pennsylvania-source income to a resident or non-resident individual, partnership or single member limited liability company and is required to file a Federal Form 1099-MISC is required to:
- file a copy of the Federal Form 1099-MISC with the Department by January 31 of the next year; and
- file a copy of the Federal Form 1099-MISC with the payee by January 31 of the next year.
If the payor or lessee must electronically file Pennsylvania employer withholding, the Form 1099-MISC must be filed electronically.
Specific questions or comments may be addressed to Bob Grossman or Shawn Firster.
