Pennsylvania Enacts New Tax Withholding and Reporting Requirements on certain non-Employee Compensation and Pennsylvania Real Estate Lease Payments for the 2018 Tax Year
Non- Employee Compensation and Business Income
For payments made on or after January 1, 2018, Pennsylvania requires withholding at a 3.07% tax rate, Pennsylvania’s current maximum personal income tax rate, on payments of Pennsylvania source compensation made to someone who (1) is not your employee and (2) is providing services to you during your trade or business.
Certain Lease Payments
As with non-employee compensation, Pennsylvania now requires that a lessee of Pennsylvania real estate making lease payments in the course of a trade or business to a Pennsylvania non-resident lessor also withhold tax at Pennsylvania’s maximum personal income tax rate. For this purpose, the term “lease payment” includes, but is not limited to, rents, royalties, bonus payments, damage rents and other payments made pursuant to a lease. Significantly, based on guidance issued by the State of Pennsylvania, for this purpose the term “lessor” is limited to individuals, estates and trusts.
Limitations on Withholding Requirement
Withholding is required when subject payments are expected to be $5,000 or more during the calendar year and is optional when the subject payments are less than $5,000 annually. However, the Department of Revenue encourages taxpayers to withhold and remit tax when the taxpayer is unsure of the total amount of payments that will be made to a non-resident payee/lessor during the year. Also note that governmental payors, including Pennsylvania’s State System of Higher Education and its institutions, are exempt from the above withholding requirements.
For more information, please contact Harry Golematis, Director, State and Local Tax Services at email@example.com or 973-364-7891.
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