Filing Requirements for Pass-Through Entity Withholding

With the enactment of a new exemption for pass-through entity withholding, Form PW-1, Wisconsin Nonresident Income or Franchise Tax Withholding on Pass-Through Entity Income, has been updated. Also, the Federal/State E-File program is now available for Form PW-1, which is generally required to be filed electronically. This notice explains when a pass-through entity is required to file Form PW-1 and how to file Form PW-1 electronically.

Who Must File Form PW-1

Form PW-1 is required whenever a pass-through entity has Wisconsin income for the taxable year that is allocable to a nonresident partner, member, shareholder, or beneficiary and that income is Wisconsin income to the nonresident partner, member, shareholder, or beneficiary. The withholding applies regardless of whether the income is actually distributed by the pass-through entity. Form PW-1 is due on the unextended due date of the pass-through entity's Wisconsin income or franchise tax return.

A "pass-through entity" means a partnership, limited liability company, tax-option (S) corporation, estate, or trust that is treated as a pass-through entity for federal income tax purposes.

The following types of entities are not required to file Form PW-1:

  • An entity that is disregarded for federal income tax purposes.
  • A grantor trust that is not required to file a federal income tax return.
  • A publicly traded partnership as defined under section 7704(b) of the Internal Revenue Code, provided the partnership files a Wisconsin Schedule 3K-1 for each partner.
  • A joint venture that has elected not to be treated as a partnership under section 761 of the Internal Revenue Code.

Additionally, if a pass-through entity has nonresident partners, members, shareholders, or beneficiaries but none of those nonresidents are required to be reported on Form PW-1 (as explained in the next section), the pass-through entity is not required to file Form PW-1.

Nonresidents Who Must Be Reported on Form PW-1

A "nonresident" means an individual who is not domiciled in Wisconsin; a partnership, limited liability company or corporation whose commercial domicile is outside Wisconsin; and an estate or trust that is a nonresident under sec. 71.14(1) to (3m), Wis. Stats.

If a nonresident claims exemption by filing Form PW-2, Wisconsin Nonresident Partner, Member, Shareholder, or Beneficiary Withholding Exemption Affidavit , the pass-through entity is still required to report that nonresident on Part 2 of Form PW-1 and check the box indicating that the nonresident filed the affidavit.

If a nonresident will be filing in a composite Wisconsin income tax return (Form 1CNS or 1CNP), the pass-through entity must still report that nonresident on Form PW-1 and pay the withholding accordingly. For nonresidents filing in a composite return, the pass-through entity pays the withholding with one Form PW-1, due on the unextended due date of the pass-through entity's Wisconsin income or franchise tax return, instead of with quarterly composite estimated payments.

Notwithstanding the requirements above, a nonresident partner, member, shareholder, or beneficiary is not required to be reported on Form PW-1 if either of the following apply:

  • The nonresident is exempt from Wisconsin income and franchise taxation.
  • The nonresident's share of pass-through income attributable to Wisconsin from the entity is less than $1,000.

How to File Form PW-1 Electronically

Form PW-1 is available through the Federal/State E-File program. Additionally, the Department offers two electronic filing programs on its pass-through entity withholding web page at no cost. An explanation of each program follows:

  • Federal/State E-File Program. Using purchased software from approved vendors, you may electronically file Form PW-1 along with your federal and Wisconsin income (or franchise) tax returns. Using this software, you can electronically file Form PW-1 as a separate submission or together with other forms.
  • My Tax Account. My Tax Account is the Department's free e-file and pay application available 24 hours a day, seven days a week.
  • E-File (XML) Transmission. E-File Transmission (also called "XML" Transmission) is also offered at no cost and is available to pass-through entities reporting up to 3000 nonresidents.

    If a tax preparer uses E-File Transmission to prepare Form PW-1 on behalf of a client, the tax preparer may submit the return directly to the Department with payment information, or the preparer may complete the return and provide it electronically to the client so the client can enter payment information and submit the return to the Department. The E-File Transmission instructions provide further information.

All three of these programs enable a pass-through entity to pay the withholding amount electronically.

February 13, 2012