The rules where you work $17
A first 30 days checklist, everyday forms, licenses, workers’ comp and taxes for Pennsylvania, with a yearly calendar. Instant PDF download.
Buy the packet: $17Digital product, all sales final. Informational only, not legal, financial, tax or business advice.
What Pennsylvania expects from a new trade business
Pennsylvania doesn't examine you, but most home improvement contractors have to register with the state. Construction also has its own strict test for who counts as a real sub. Your lien clock is long, six months, but the steps have to be done in order.
Home improvement means registering with the state
Home improvement runs through the Attorney General's Office, under the Home Improvement Consumer Protection Act. It's a registration, and it covers jobs over $500 on private homes. The Act exempts anyone whose home improvements came to less than $5,000 in the previous taxable year, but the AG's pages also say "per year." New with no prior year? Ask the AG before your first job. The AG says the fee is $100 every two years, though the Act as posted still prints $50. You show at least $50,000 in personal injury and $50,000 in property damage coverage.
You need a written, signed contract with the required terms, including your registration number, total price and start and finish dates. Without them the contract can't be enforced against the owner. The owner can cancel within 3 business days of signing. Over $5,000, you can't take a deposit above one-third of the price, plus special order materials named in the contract. Time and materials can't run over 10% above your written estimate without a signed change order. A hold harmless clause, a jury waiver or a clause awarding you attorney fees lets the owner void the contract. Arbitration clauses have their own format rules.
Working unregistered means civil penalties of $1,000 or more. Cities and towns can't add their own registration, but local licensing of electricians and plumbers stays, so check locally. A construction attorney can look over your contract.
Source: PA Attorney General, Home Improvement Contractor Registration · PA Attorney General, Contractor FAQ · Home Improvement Consumer Protection Act (Attorney General copy)
Who to call: an attorney near you
A 1099 won't make someone a sub here
Comp is mandatory for most employers in Pennsylvania, and coverage begins the first day on the job, through a private carrier or the State Workers' Insurance Fund. No coverage can mean lawsuits and criminal prosecution.
Construction has its own law, Act 72. Someone only counts as an independent contractor if all of this is true: written contract, controls their own work, owns their tools, can make a profit or take a loss, owns a business, has a separate business location, has worked or offers to work independently, and carries at least $50,000 in liability insurance. Misclassifying can mean up to $2,500 per violation, a stop work order, and criminal charges.
Executive officers count as employees, but one with an ownership stake can elect out (S-corp owners, or 5% in a C-corp). If you're an LLC owner, ask an insurance agent who writes contractors how that applies to you.
Source: PA L&I, Workers' Compensation · PA L&I, Act 72 poster (LLC-71) · PA Workers' Compensation Act, sections 104 and 305
Who to call: an insurance agent near you
Getting paid: six months, then two years
Pennsylvania's Mechanics' Lien Law gives you more time than most states. Your claim has to be over $500.
- Subs only: give the owner formal written notice at least 30 days before you file. Contractors with a direct contract don't send this.
- File your claim with the prothonotary within 6 months after completing your work. If someone gets a court rule ordering you to file, you have 30 days or you're barred.
- Serve the owner with notice of filing within 1 month after filing, and file your affidavit of service within 20 days of serving. Miss those and the claim can be struck.
- Sue within 2 years of filing, unless the owner extends it in writing. A verdict or judgment has to come within 5 years of filing.
- Once you're paid, satisfy the claim within 30 days of a written request.
On projects of $1.5 million or more, subs file a Notice of Furnishing within 45 days of first work, but only where the owner filed a Notice of Commencement with the state directory and posted it.
The home rule: a sub has no lien if the owner or tenant paid the contractor in full, the property is or will be the owner's residence or a tenant's, and it's a one- or two-unit building or single townhouse. Partial payment can reduce the lien by court order.
Lien waivers can be signed on residential work, so read what you sign. On nonresidential work, a contractor's waiver is void unless it's for payment actually received. A construction attorney can help.
Source: Mechanics' Lien Law of 1963, Act 497 (sections 301, 401, 501, 501.3, 502, 701)
Who to call: an attorney near you
You pay on materials going in
Under Pennsylvania's rules, if your work is confined to construction, you pay tax to your supplier on what you furnish and install. You don't charge your customer tax on the job. If an out-of-state seller doesn't collect, you send the use tax to the state yourself. You also pay tax on your tools and equipment.
Sell things too, and you've got two hats. Do both and you need a sales tax license. You can buy what you know you'll resell on a resale certificate and collect tax from your customer. That includes the labor on retail sale and install of items that don't become part of the building, like a portable dishwasher, even if labor is listed separately.
A built-in dishwasher in a new house is construction. A portable one is a sale. A CPA who works with contractors can help with the gray areas.
Source: 61 Pa. Code Chapter 31, sections 31.11-31.16
Who to call: a CPA or tax pro near you
A $125 LLC and a $7 annual report
Forming an LLC with the Department of State costs $125. Pennsylvania's annual report is one of the cheapest anywhere: $7, filed January 1 through September 30. There's no late fee, but starting with 2027, the state can dissolve or cancel an LLC 6 months after a missed report. So don't let the low price fool you into ignoring it. Doing business under a name other than your own legal name means a fictitious name registration, $70.
Pennsylvania's personal income tax is a flat 3.07%, and partnerships and S-corps are named in the tax. An S-corp election is a numbers question: bring what your business clears after your floor rate to a CPA who works with contractors.
Source: PA Department of Revenue, Personal Income Tax · PA Department of State, Business · PA Department of State fees · PA annual reports
Who to call: a CPA or tax pro near you
Education, not legal or tax advice. Rules change. Confirm anything here with a licensed pro in Pennsylvania before you rely on it. Last updated November 2026.