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of the Commonwealth of Pennsylvania

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    Local, state, and federal government websites often end in .gov. Commonwealth of Pennsylvania government websites and email systems use "pennsylvania.gov" or "pa.gov" at the end of the address. Before sharing sensitive or personal information, make sure you're on an official state website. 

    Local, state, and federal government websites often end in .gov. Commonwealth of Pennsylvania government websites and email systems use "pennsylvania.gov" or "pa.gov" at the end of the address. Before sharing sensitive or personal information, make sure you're on an official state website. 

    Local, state, and federal government websites often end in .gov. Commonwealth of Pennsylvania government websites and email systems use "pennsylvania.gov" or "pa.gov" at the end of the address. Before sharing sensitive or personal information, make sure you're on an official state website. 

    Local, state, and federal government websites often end in .gov. Commonwealth of Pennsylvania government websites and email systems use "pennsylvania.gov" or "pa.gov" at the end of the address. Before sharing sensitive or personal information, make sure you're on an official state website. 

    Local, state, and federal government websites often end in .gov. Commonwealth of Pennsylvania government websites and email systems use "pennsylvania.gov" or "pa.gov" at the end of the address. Before sharing sensitive or personal information, make sure you're on an official state website. 

    Local, state, and federal government websites often end in .gov. Commonwealth of Pennsylvania government websites and email systems use "pennsylvania.gov" or "pa.gov" at the end of the address. Before sharing sensitive or personal information, make sure you're on an official state website. 

    Local, state, and federal government websites often end in .gov. Commonwealth of Pennsylvania government websites and email systems use "pennsylvania.gov" or "pa.gov" at the end of the address. Before sharing sensitive or personal information, make sure you're on an official state website. 

    Local, state, and federal government websites often end in .gov. Commonwealth of Pennsylvania government websites and email systems use "pennsylvania.gov" or "pa.gov" at the end of the address. Before sharing sensitive or personal information, make sure you're on an official state website. 

    Local, state, and federal government websites often end in .gov. Commonwealth of Pennsylvania government websites and email systems use "pennsylvania.gov" or "pa.gov" at the end of the address. Before sharing sensitive or personal information, make sure you're on an official state website. 

    Local, state, and federal government websites often end in .gov. Commonwealth of Pennsylvania government websites and email systems use "pennsylvania.gov" or "pa.gov" at the end of the address. Before sharing sensitive or personal information, make sure you're on an official state website. 

     
    Tax Types and Information

    Nonresident Withholding

    Pennsylvania law requires withholding at a rate of 3.07 percent on non-wage Pennsylvania source income payments made to nonresidents. Withholding of payments that are less than $5,000 during the calendar year are optional and at the discretion of the payor.

     

    Failure to comply with the withholding requirement may make you liable for the amount you should have withheld, plus penalties and interest. If you are unsure of the total amount of payments that will be made during the year, the Department of Revenue encourages you to withhold and remit income tax from all payments made.

    General Rules

    Nonresident withholding applies if all of the following are true:

    • You are responsible for making payments of non-wage income from Pennsylvania sources(commercial leases, royalties, services rendered, etc.).
    • The payment will exceed $5,000 per payee in the calendar year.
    • The payment is made to a resident of another state.

    Additionally, nonresidents are typically:

    • Individuals who do not live in Pennsylvania.
    • Business entities that do not have a permanent place of business in Pennsylvania.
    • Estates whose decedent was not a Pennsylvania resident at the time of their death.
    • Trusts with no Pennsylvania resident settlors.

    The nonresident withholding requirement does NOT apply to:

    • Wages paid to employees (see reciprocity rules).
    • Payments for goods and materials.
    • Sales of real estate located outside of Pennsylvania.
    • Residential rental agreements or residential lease payments.

    Nonresident withholding is not required when:

    • The payee is a corporation.
    • The payee is a partnership or multi-member liability company.
    • The payee is a nonresident with no PA source income.
    • The payee is a disregarded entity owned by a corporation or partnership.

    Pennsylvania Personal Income Tax law provides for a withholding obligation for certain payors of Pennsylvania-source income and lessees of Pennsylvania real estate to nonresidents.

    Anyone that makes the following payments is required to withhold from such payments an amount equal to the tax rate specified per 72 P.S. § 7302 (currently 3.07%):

    • Payments of Pennsylvania source non-employee compensation or business income to a nonresident individual or disregarded entity that has a nonresident member, if they are required to report the payments on a 1099-MISC or 1099-NEC for federal income tax purposes.
    • Lease payments for Pennsylvania real estate made from a lessee in the course of a trade or business to a to a nonresident lessor.

    NOTE: Withholding is optional for payors or lessees paying less than $5,000 annually. However, if you are unsure of the total amount of payments that will be made during the year, the department encourages you to withhold and remit income tax from all payments made.

    Governmental payors, including the Pennsylvania State System of Higher Education and its institutions, are exempt from the requirement of withholding on non-employee compensation and business income.

    Non-Employee Compensation

    Typically, a payment is considered “non-employee compensation” if it is made to: (i) someone who is not your employee; and (ii) for services in the course of your trade or business.

    Lease Payments

    A lease payment includes, but is not limited to, rents, royalties, bonus payments, damage rents and other payments made pursuant to a lease.

    A lessor includes only individuals, estates and trusts.

    Payor/Lessee Responsibilities

    1. Registering - Any payor/lessee required to withhold must apply for a 1099-MISC/NEC withholding account by completing the Pennsylvania Online Business Tax Registration process at mypath.pa.gov. If you already have an employer withholding account and you do not want to report the 1099-MISC/NEC separately, you do not have to complete a new registration. However, if you want to report the 1099-MISC/NEC separately, you must register for a 1099-MISC/NEC withholding account.
    2. Withholding and Remittance Requirements - Payors and lessees are required to withhold and remit taxes on income according to the following schedule:
    • Semi-Weekly – If total withholding is $5,000 or greater per quarter ($20,000 per year), such payors are required to make withholding deposits on the following Wednesday for any payments made on Wednesday, Thursday or Friday; and on Friday for any payments made on Saturday, Sunday, Monday or Tuesday.
    • Semi-Monthly - If total withholding is $1,000 to $4,999.99 per quarter, the taxes are due within three banking days of the close of the semi-monthly period.
    • Monthly – If total withholding is $300 to $999 per quarter, the taxes are due the 15th day of the following month.
    • Quarterly – If total withholding is under $300 per quarter, the taxes are due the last day of April, July, October and January.

    The (REV-1716) Period Ending and Administrative Due Dates for the Remittance of Employer Withholding and filing of Quarterly Returns and W-2 Forms can be located on the Department of Revenue website by searching under Employer Withholding Forms.

    Withholding tax payments, quarterly returns, and annual reconciliations must be submitted electronically to the department through myPATH, the department’s online business tax filing system. All payments of $1,000 or more must be remitted by Electronic Funds Transfer (EFT). Electronic payments can be made through myPATH at mypath.pa.gov.

    1. Annual Filing Requirements - The Annual Withholding Statement (REV-1667), along with the individual 1099-MISC/NEC forms, must be filed electronically with the department through myPATH by January 31 of the ensuing tax year.
    2. Issuing 1099-MISC/NEC - Payors or lessees are required to file a Federal Form 1099-MISC/NEC with the department and are required to provide a copy to the payee or lessor by January 31 of the ensuing tax year.
    3. Corrected 1099-MISC/NEC - File a corrected Federal Form 1099-MISC/NEC if it is issued to a payee or lessor and the amounts related to income from sources within Pennsylvania changes for nonresident recipients or the total amount changes for resident recipients.

    Payee/Lessor Responsibilities

    Payees and lessors having tax withheld who receive a copy of the Federal Form 1099-MISC/NEC from the lessees are required to file a copy thereof with their Pennsylvania tax return.

    Pennsylvania personal income tax is imposed upon eight classes of income — (1) compensation, (2) net gains from the disposition of property, (3) net profits, (4) net gains from rents, royalties, patents and copyrights, (5) interest, (6) dividends, (7) estate and trust income, (8) and gambling income. PA residents are subject to tax on all eight classes of income regardless of the source of the income. Nonresidents are subject to tax on the eight classes of income from PA sources.

    Generally, PA source income is income derived from activity or property located in PA. Such income includes:

    1. Income from ownership or disposition of real or personal property located in PA. For example, rental income from PA property or the sale of real estate located in PA.
    2. Income from work performed in PA, such as personal services or business income.
    3. Income from intangible property employed in a trade, profession, occupation or business carried on in the Commonwealth.
    4. Gambling and lottery winnings from a wager placed in PA.

    A distributive share of income from pass-through entities (partnerships and S corporations) from the above sources of income is also PA source income.

    Question: How does a payor determine the amount of income that is subject to PA withholding?

    Answer: When income is derived from activity or property both within and outside of PA, the income must be apportioned and allocated in a fair and equitable manner. There is no single method for apportioning and allocating income. Any apportionment and allocation methods used by a taxpayer are subject to review by the Department of Revenue.

    Generally, income should be specifically apportioned and allocated based upon the location of the activity or the property that generates the income. However, if the source of the income is not readily ascertainable, other apportionment methods can be used, such as:

    1. For services performed both in and outside PA, the income from such services may be apportioned and allocated based upon working days within and outside the Commonwealth.
    2. If the income is based upon volume of activity, such as commissions of a salesman, the income may be apportioned based upon the volume of activity within and outside PA.
    3. If a business does not keep specific records of the source of its income, three-factor apportionment (property, payroll and sales factors) may be used to apportion and allocate the business income.

    For specific rules related to PA source income and apportionment and allocation rules, see 61 Pa. Code §§ 101.8 and 109.1-109.9.

    Lessor/Payee – For purposes of nonresident withholding, the terms “payee or lessor” are used to describe any person or entity that receives payment from a payor. The department may also refer to the payee as the “vendor.” For this requirement, the payee/lessor is the out-of-state individual.

    Lessee/Payor – For purposes of nonresident withholding, a payor is an individual, estate, trust or business that makes payments to a payee. 

    Independent contractor – An independent contractor is an individual or entity that contracts to perform services. Employees are not independent contractors.

    Agent – An agent is any person or entity having the control, receipt, custody, disposal or payment of Pennsylvania source income. Generally, this responsibility is authorized by a commercial lease agreement or contract (i.e. management company).