Our Exton PA office is alerting PA Lessees that the Commonwealth of PA Requires PA Lessees of Real Estate to Withhold the PA Personal Income Tax (PIT) on Lease/Rental Payments Made to Non-PA Resident Commercial Landlords
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.
Bryan Haarlander, an Enrolled Agent and a Certified Tax Resolution Specialist, is an affiliated member of the Suburban West Realtors Assocation, a member of the American Society of Tax Problem Solvers (ASTPS), PA Society of Tax & Accounting Professionals (PSTAP), the National Society of Accountants (NSA) and the National Association of Tax Professionals (NATP). He is the author of “How to Resolve Your IRS Tax Debt Problems” as well as a book on how to start your own business. He has been practicing in Exton for 18 years. His blogs http://www.taxexpertblog.com and http://www.stopmytaxproblems.com discuss pertinent tax and business issues.
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Keystone Financial Solutions, Inc. specializes in providing innovative tax planning, tax preparation, and solving IRS tax problems. The company’s web site is https://www.keysolutions.us and its telephone number is (610) 594-2601.
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