Local Withholding Tax FAQs

How do I find local Earned Income Tax (EIT) Rates and PSD Codes?

To determine EIT Rates, PSD Codes and tax collector/officer contact information, use the Address Search Application following the instructions contained in the Guide for Using the Address Search Application.

How is an individual employee’s local Earned Income Tax liability determined?

An individual employee’s local Earned Income Tax (EIT) Rate is determined by comparing the employee’s “Total Resident EIT Rate” (for the municipality in which the employee lives) to the “Work Location Non-Resident EIT Rate” (for the municipality in which the employee works). The applicable EIT rate owed and to be withheld is always the higher of the two rates.

What are PSD Codes, and how are they utilized in the implementation of the local Earned Income Tax process?

PSD (political subdivision) codes are six-digit numbers that uniquely identify each municipality in Pennsylvania. PSD Codes play an integral role in assisting employers and Tax Officers to remit and distribute the correct amount of local Earned Income Tax to the appropriate taxing jurisdictions. Employees are required to complete a Residency Certification Form upon hire and to provide notification of a name or address change. PSD Codes are a necessary component of information required to be provided on this form.

As an employer, how does Act 32 and local Earned Income Tax withholding apply to me? Am I required to withhold local income taxes from my employees?

EMPLOYEES WHO LIVE AND WORK IN PA?

As an employer, you must complete the Residency Certification Form for each employee in order to compare the “Total Resident EIT Rate” (for the municipality in which the employee lives) to the “Work Location Non-Resident EIT Rate” (for the municipality in which the employee works). You are required to withhold the higher of the two EIT Rates, as well as the Local Services Tax (LST), and make remittances to the local tax collector(s) for the worksite location(s). Follow the steps outlined on the Income Tax Requirements for Employers page for more information.

EMPLOYEES WHO LIVE IN PA, BUT PHYSICALLY WORK OUTSIDE OF PA?

As an out-of-state employer, you are NOT required to complete the Residency Certification Form or withhold the local Earned Income Tax (EIT) for a PA resident employee. However, the PA resident employee will still be subject to and owe the “Total Resident EIT Rate” based on their PA home municipality. Therefore, as an out-of-state employer, you may withhold the “Total Resident EIT Rate” as a courtesy to your PA resident employee and make remittances to the local tax collector for their PA home municipality. If you choose not to withhold and remit, then please notify your PA resident employee that they will be responsible for making quarterly estimated payments on their own directly to the local tax collector(s) for their PA home municipality.

EMPLOYEES WHO WORK IN PA, BUT LIVE OUTSIDE OF PA?

As an employer, you must complete the Residency Certification Form for each employee. For an employee who lives out-of-state, the “Resident PSD Code” will be 880000, and the “Total Resident EIT Rate” will be 0%. The out-of-state resident employee will still be subject to and owe the “Work Location Non-Resident EIT Rate,” as well as the Local Services Tax (LST), based on the PA worksite municipality. You are required to make remittances to the local tax collector(s) for the worksite location(s). Follow the steps outlined on the Local Income Tax Requirements for Employers page for more information.

How should employers withhold local Earned Income Tax for employees who travel from site to site on a regular basis and do not maintain a single place of employment?

Choose one of the three following scenarios that best describes the employee’s work environment:

EMPLOYEE TEMPORARILY WORKING AT PA FACILITY

If an employee is working temporarily at a PA facility for a period of time that encompasses a “reporting quarter,” then use the PA facility site address to determine the appropriate local tax withholding information for the employee.

EMPLOYEE “FLOATS” OR IS TRANSFERRED BETWEEN BUSINESS SITES

If an individual employee “floats” or is transferred daily, weekly or monthly between business sites, but the employer has a central business location in PA, then use the employer’s PA central business location address to determine the appropriate local tax withholding information for the employee.

EMPLOYEE RECEIVES WORK ORDERS OR INSTRUCTIONS AT HOME, BUT PHYSICALLY REPORTS ELSEWHERE

If an employee receives work orders or instructions at home in PA, but physically reports to other business sites on a daily, weekly or monthly basis, then use the employee’s home address to determine the appropriate local tax withholding information for the employee.

How can a business with worksite locations in multiple tax collection districts remit local income tax withholdings to a single local tax collector?

Businesses with multiple worksite locations across the state may file and remit all local Earned Income Tax (EIT) withholdings to a single local tax collector. However, there are important implications associated with doing so, including:

  • Employers who make combined filings and remittances are required to file and remit electronically and on a monthly basis, rather than quarterly.
  • The option to make combined filings and remittances does not apply to the Local Services Tax (LST). Therefore, the employer may still be required to make separate remittances to multiple LST collectors.

In order to exercise the option to make combined filings and remittances, follow the steps outlined below:

  • Register your business with each local tax collector for each of your worksite locations.
  • Contact one of the local tax collectors with whom you have registered to request that they act as your single local tax collector and accept all local Earned Income Tax (EIT) remittances for all of your worksite locations.
  • Notify all other local tax collectors with whom you have registered that you will be remitting to a single local tax collector by completing and submitting the of Intent to file Combined Returns and Make Combined Payments form.
Does Act 32 apply to employees who live and/or work in Philadelphia?

EMPLOYEES WHO LIVE AND WORK IN PHILADELPHIA

Employers are required to withhold the Philadelphia resident rate for employees who live and work in Philadelphia. Remittances are made directly to the Department of Revenue.

EMPLOYEES WHO WORK IN PHILADELPHIA, BUT LIVE OUTSIDE OF PHILADELPHIA

Employers are required to withhold the Philadelphia non-resident rate for employees who work in Philadelphia, but live outside of Philadelphia. Remittances are made directly to the Department of Revenue.

EMPLOYEES WHO LIVE IN PHILADELPHIA, BUT WORK IN PA OUTSIDE OF PHILADELPHIA

Act 32 does not apply. Employers are required to withhold the Philadelphia resident rate for employees who live in Philadelphia, but work outside of Philadelphia. Remittances are made directly to the Department of Revenue.

As an employer, where do I register for local income tax withholdings? Am I required to register my business with each tax local collector where my employees live?

As an employer, you are required to register your business with each local tax collector for your PA worksite location(s). Examples of business sites include but are not limited to factories, warehouses, offices and residences of home-based employees.

You do not need to register your business with the local tax collectors for your employees’ home municipalities—unless you have employees who work from home, thus establishing additional worksite locations.

How often are employers required to remit local taxes to the local tax collectors?

Quarterly filings and remittances are due within 30 days of the end of each calendar quarter. However, employers with multiple worksites who have elected to remit to a single local tax collector must file and remit on a monthly basis.

Must the Local Services Tax (LST) be withheld on a prorated basis, or can it be deducted as a one-time lump sum?

If a municipality and school district’s combined Local Services Tax rate is more than $10, employers must withhold the tax based on their number of annual payroll periods and are prohibited from withholding the tax in a lump-sum payment. However, if the combined LST rate is $10 or less, it may be withheld all at once from the first paycheck of the year.

Where can I find information about the $12,000 low-income exemption for the Local Services Tax (LST)?

Each political subdivision that levies an LST at a rate exceeding $10 is required to exempt persons whose total earned income and net profits from all sources within the political subdivision is less than $12,000 for the calendar year in which the LST is levied. The school district for the municipality in which a worksite is located may or may not levy an LST. If it does, the income exemption provided may differ from the municipality and can be anywhere from $0 to $11,999. “Income from all sources” is defined as the same earned income and “net profits” that are used to determine the local earned income tax. For more information, refer to the Application for Exemption from Local Services Tax and the Application for Refund from Local Services Tax.

What happens if the income of an individual who filed an upfront Application for Exemption from Local Services Tax later exceeds the $12,000 threshold during the calendar year?

If that person’s earned income from the primary employer exceeds $12,000 or the municipality’s tax collector informs the employer that the employee’s income has reached $12,000, employers “restart” withholding of the LST by withholding: (1) a “catch-up” lump sum tax equal to the amount of tax that was not withheld from the employee as a result of the exemption; and (2) the same amount per payroll period that is withheld from other employees. Except for monitoring when an employee who has filed an exemption certificate earns more than $12,000, the intent of the amendment is that employers are not responsible for investigating exemptions, monitoring tax exemption eligibility or exempting an employee from the tax.

If an employee works in more than one municipality, and each levies a Local Services Tax, which one has priority for the collection of the tax?

The primary place of employment is determined the day the taxpayer first becomes subject to the tax during the payroll period if the tax is levied at more than $10. If the tax is levied at $10 or less, it is the first place of employment during the calendar year based on the following priorities (listed in order):

  • The municipality where the employee maintains his or her principal office or is principally employed;
  • The municipality where the employee lives and works if the municipality levies the local services tax;
  • The municipality where the employee works and is nearest to his residence if that municipality imposes the tax.