Lessees Required to Withhold PA PIT on Lease Payments Made to non-PA Commercial Landlords
PA 72 P.S. §7324.4 Withholding Requirement
PA 72 P.S. § 7324.4 states “Every lessee of Pennsylvania real estate who makes a lease payment in the course of a trade or business to a nonresident lessee shall withhold Pennsylvania personal income tax on rental payments to such nonresident lessor.”
Who Is Subject to this Withholding?
This withholding requirement only applies to non-resident individuals, estates or trusts or disregarded entities owned by such non-resident entities.
Who Is Not Subject to this Withholding?
Payments to any of the following are not subject to this withholding requirement: Partnerships, Corporations, Multi-Members LLCs, Residents, and disregarded entities (LLCs) owned by partnerships, corporations, multi-member LLCs or residents.
What is Subject to Withholding?
Lessor withholding only applies to commercial lease payments (which are broadly defined). Residential lease payments are exempt from the withholding requirement.
Any Threshold Withholding Requirement?
The PA Dept. of Revenue states that withholding is optional if annual lease payments are less than $5,000. Out-of-state lessors may prefer that PA personal income tax be withheld to lessen their PA tax remittance requirement.
Tax Planning Tip #1:
PA lessees should protect themselves from failure to withhold. To determine if the lessor is a non-resident individual of PA or a disregarded entity owned by one, have the lessee complete PA Form REV-1832, 1099-MISC Withholding Exemption Certificate form. This form lists the reasons the payee is not subject to the PA 3.07% withholding tax. The payee simply checks the appropriate box which the landlord can normally accept in good faith.
Tax Planning Tip #2:
Determine the annual lease payment to the non-resident lessor. If not more than $5,000 in a calendar year, no withholding is required. If it is unknown whether the $5,000 threshold will be met, the PA DOR encourages withholding.
Tax Planning Tip #3:
If lessor will likely be paid more than $5,000 or if the lessee wishes to withhold, register for a 1099 withholding account on E-Tides. Withhold tax at 3.07% rate for lease/rental payments made to non-PA resident lessors on PA situs property.
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.