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 were 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.
It is recommended that you provide PA form REV-1832 to all your vendors. Have them complete the payee information and exemption reason as applicable. If the completed REV-1832 is not received with an appropriate exemption, you should withhold PA income from those non-resident vendors to whom you pay $5,000 or more annually. Completed form REV-1832 should be maintained for your records.
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