As a sole proprietor in Virginia doing remote contract work for a Pennsylvania nonprofit, am I exempt from 1099-MISC withholding?

May 31, 2019

askacpaiconI am a sole proprietor in Virginia who will be doing mostly remote contract work for a Pennsylvania nonprofit. The contract total will be over $5,000 plus expenses. I have provided the client with my W-9, and they now want me to complete REV-1832, 1099-MISC Withholding Exemption Certificate. Being in a reciprocal state, am I exempt? If not, what needs to happen next?

There is a box under “Exemption Reason” on the PA 1099-MISC Withholding Exemption Certificate (Form REV-1832) for “Not Subject to PA Income Tax.” There is also a box for “Payee is a nonresident with no PA-source income.”
A Virginia resident who is not traveling to Pennsylvania to perform services (i.e., doing mostly remote contract work) would not be subject to the new Pennsylvania tax withholding on payments made to nonresidents.
The reciprocity agreement applies only to wage or salary income, not self-employment income. So, independent contractors who are nonresidents but spend work days in Pennsylvania would still be required to use a method of allocation and apportionment prescribed by the regulations under Pennsylvania Statutes Title 72 P.S. Section 7310. 

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Paula A. Rummell, CPA, is tax senior manager with H2R CPA in Pittsburgh.

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