By Peter Calcara, vice president – government relations
The calendar on my desk says it’s February. That can only mean we are back in budget season. This crazy, unpredictable time of the year seems to be one never ending argument over how to fund the state’s programs and services. It seems like only yesterday when the General Assembly was still fighting over the remaining elements of the 2017-2018 fiscal year budget. (Actually, the final pieces of that spending plan came together in late October.)
The budget, though, is not the only big issue for the PICPA right now. There is also new 1099-MISC rules that businesses and CPAs have been wrestling with. Here’s a broad look at Gov. Tom Wolf’s budget plan, and an update on PICPA’s efforts to help members comply with new 1099-MISC reporting and withholding requirement.
For a more in-depth discussion of the governor’s proposed budget and other legislative happenings in Harrisburg, view a recording of the PICPA’s Legislative Update special budget webinar from Feb. 16.
Wolf presented his proposed fiscal year 2018-2019 executive budget during a Feb. 6 address to a joint session of the General Assembly. He proposed a General Fund spending plan of $32.9 billion, an increase of 3.1 percent over the current fiscal year.
The governor’s budget plan includes two tax law changes—a severance tax (Read “Shale We Tax.”) and mandatory combined reporting (Read PICPA’s issue brief on combined reporting.) coupled with a corporate tax rate decrease. Neither tax proposal is a new issue—Wolf has proposed both in each of his first three budgets. But this is an election year for the governor and members of the General Assembly, and both taxes are politically popular with many voters.
Wolf’s budget adds new investments in public education, workforce development, child care assistance, and services for those with autism and intellectual disabilities and home and community-based care for seniors. It keeps funding consistent for Penn State University, University of Pittsburgh, Temple University, Lincoln University, and Thaddeus Stevens College of Technology, and proposes combining the Department of Human Services and the Department of Health into the Department of Health and Human Services. The budget provides additional support to fight the opioid crisis by expanding access to treatment, prevention, and education. It also calls for an increase in the state’s minimum wage to $12 per hour.
The Senate and House appropriations committees will commence their budget hearings on Feb. 20.
New 1099-MISC withholding obligation for Pennsylvania businesses began Jan. 1, 2018, as a result of Act 43 of 2017. The additional administrative burden and compliance costs to businesses is significant, and taxpayers have had limited time to comply with the new requirement. Moreover, the guidance to businesses and practitioners to date has been murky. In late January the PICPA wrote to the Department of Revenue (DOR) requesting a delay in the requirement.
It is important to note that while the new reporting requirement is cumbersome and complicated, there were other, much more onerous options on the budget table last year during negotiations. One such option would have made the tax appeals process virtually off-limits to all CPAs. Through the efforts of the PICPA and other business organizations, we were able to keep the worst proposals from the final package.
In response to PICPA’s request to the DOR, the department has agreed to take the following actions:
1099-MISC income that is subject to the withholding provisions of Act 43 of 2017 will not be subject to assessment for a failure to withhold for a period ending prior to July 1, 2018. However, when tax is withheld, it must be filed and remitted as required by law.
DOR expects that payors/lessors will timely file the related 1099-MISC, with boxes 16 and 17 completed, with the department in January 2019.
The PICPA and the DOR will continue to work together to further refine the guidance on the matter, as well as a legislative clean-up proposal.
Following this year’s budget hearings, lawmakers and the Wolf administration will roll up their sleeves and try to achieve a full budget agreement by the June 30/July 1 deadline. Up to that point (and beyond, if we use history as a guide) there is sure to be a lot of legislative activity.
I encourage PICPA members to remain vigilant (even during tax season) about what’s happening in Harrisburg. A lot of proposals will come to the table that may affect your livelihood and that of your clients or employers.