We provide here a written summary of answers provided by the Department of Revenue to the committee at periodic question and answer sessions. These documents are classified as Revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on a specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.
Q&A with the Pennsylvania Department of Revenue
Scenario: claiming business expenses
Since a W-2 is issued with no Federal or PA Withholding (only FICA and Medicare Tax), is there any preference for:
a) Filing a Schedule C and claiming business expenses?
b) Claiming the expenses on a UE form, as long as the net amount is reported on line 1 of the PA return?
Even though statutory employees receive W-2 forms instead of 1099 forms, the form does not control how the statutory employee’s income is reported for PA PIT purposes.
Most, if not all, statutory employees receive non-employee compensation for their services. Consequently, their income should be reported as compensation and Schedule UE may be used to claim expenses associated with generating the income. If a statutory employee’s activities meet the “commercial enterprise test”, then his income classified as “business income” and his income and expenses can be reported on Schedule C.