New Requirements for Pennsylvania Businesses Working with Out-of-State 1099-MISC Vendors and Subcontractors

If you operate a Pennsylvania-based business and engage with subcontractors and vendors on a 1099-MISC basis, there is a new requirement from the Commonwealth of Pennsylvania. Effective January 1, 2018, “payors of non-employee compensation or rent to non-resident individuals or their SMLLC’s must withhold Pennsylvania income tax at the rate of 3.07% of their payments.”

What does this mean? For Pennsylvania-based businesses engaging with subcontractors and vendors located outside of Pennsylvania who operate as an individual or an “SMLLC” (single member limited liability company), and to whom your annual payments will total above $5,000, you are responsible for withholding Pennsylvania income tax on their payments at a rate of 3.07%.

Since this is new, penalties for non-withholding have been delayed until the end of the second quarter of 2018. If you are not certain as to whether you will meet the $5,000-plus criteria, the state is recommending you remit the withholdings.

If you have any questions about this or any other topic related to financial or IT services, we are happy to help. Call 215-723-4881 or contact us online.