Local Tax Overview. Pennsylvania

Transcription

1 Local Tax Overview Pennsylvania

2 Table of Contents Pennsylvania s Earned Income Tax... 1 Tax Rates... 1 Tax Collection Districts (TCDs)... 1 A Map of the Tax Collection Districts... 2 Residency Certification Form... 3 Withholding and Reporting... 4 Political Subdivision (PSD) Codes... 5 Pennsylvania Municipality Website... 6 Philadelphia Rules... 9 Pittsburgh Payroll Expense Tax Local Services Tax (LST) U.S. Census Bureau Website Local Tax Quick Reference i Revised 4/11/2012

3 Pennsylvania s Earned Income Tax The Earned Income Taxes (EIT) in Pennsylvania are local income taxes imposed by the employee s resident municipality. In 2012, new legislation called Act 32 provides for a restructuring of the Earned Income Tax Collection System for Pennsylvania local governments and school districts. Legislation requires all taxing authorities that implement an Earned Income Tax to comply with all applicable regulations for January 1, This new collection system will greatly reduce the number of tax collectors. Employers will be required to withhold from all employees working in a collection district and send the deposit and filing to that central collector who will then be responsible for forwarding the tax to the employees respective resident jurisdictions. Tax Rates If the tax rate for the employee s resident municipality is different than the rate for their worked-in municipality, employers will be required to withhold the higher of the two rates. Tax Collection Districts (TCDs) Under Act 32, the current earned income tax collection process will be restructured to create county-wide Tax Collection Districts. These new districts will have boundaries that are congruent geographically with current county lines, unless there is a school district that overlaps county boundaries. If a school district crosses a county line, the school district and its component municipalities will be kept whole and be included in the county where the affected municipalities have the greatest population. There will no longer be the possibility of different collectors for a school district and municipality (previously referred to as a split collector) and there will no longer be the possibility of a resident-only collector or courtesy withholding. Act 32 provides for one EIT tax office (collector) for each county, other than Philadelphia. It will result in a reduction of local EIT collectors from 560 to 21. 1

4 A Map of the Tax Collection Districts The map above shows the 69 counties or Tax Collection Districts in Pennsylvania. Berks County, also known as the Berks Tax Collection District, has been highlighted. Below is Berks County. Within this county are several townships and boroughs, also known as Political Subdivisions (PSD). Among them is Tilden Township, highlighted below. 2

5 Residency Certification Form Employers will be required to obtain a completed Residency Certification form from each of their employees. This form is provided by the Pennsylvania Department of Community and Economic Development. This form can be downloaded from: 3

6 Withholding and Reporting Once it s been determined where employees are working and living, the withholding and remitting is based upon the higher of those two rates. The table below displays how withholding and remitting might look, along with the Political Subdivision (PSD) codes for three employees who work in Tilden Township Employee Work PSD John Mary Joe Tilden Twp Tilden Twp Tilden Twp Work Rates Res 1.00% NonRes 1.00% Res 1.00% NonRes 1.00% Res 1.00% NonRes 1.00% Resident PSD Tilden Twp East Union Twp Bern Twp Resident Rates Withholding Rate Remitted to: 1.00% 1.00% Tilden Twp (Berks) 1.50% 1.50% Tilden Twp (Berks) 1.00% 1.00% Tilden Twp (Berks) While John, Mary, and Joe all work in Tilden Township, Mary and Joe live in different municipalities and Mary s resident rate is higher than Tilden Township s nonresident rate. Therefore, the employer would be required to withhold 1.5% from Mary and remit it to the collector for Tilden Township. 4

7 Political Subdivision (PSD) Codes These six-digit numeric codes have been formulated to designate each of the 69 tax collection districts, along with the school districts and municipalities therein. Act 32 requires that employers and tax officers utilize PSD codes prescribed by the Department of Community and Economic Development (DCED). PSD Codes have been designed to identify the municipalities and school districts for each tax collection district and aid in ensuring that employee Earned Income Tax withholdings are remitted and distributed to the proper taxing authority. The first two digits of these six-digit codes represent the tax collection district, the next two digits represent the school district and the last two digits represent the political subdivision. For example, the PSD code for the example we ll be looking at in the Pennsylvania website for Tilden Township is Berks County Hamburg S.D. Tilden Township When quarterly filings are remitted to the worked-in tax collector, employee wage detail will be included which should provide the PSD code of the work location and the PSD code for each employee s home location. A list of these codes is available on and that link is: These can also be found on the Pennsylvania Municipal Statistics Website 5

8 Pennsylvania Municipality Website To determine which political subdivision a business is located in and to verify the employee s resident and nonresident withholding rates, the Pennsylvania Website can be very helpful. This site can be accessed at: From the home page of this website, click the link near the top left which states Find Your Withholding Rates by Address. 6

9 From the screen below, type the employee s home address in the top section and their work location address in the bottom section. Click View Report. 7

10 The window below will open, displaying the employee s resident earned income tax rate, their work location nonresident rate, and the PSD codes for each. Also displayed at the bottom are the collectors for the Earned Income Tax and the Local Services Tax. In this example, the employee lives in Bern Township and has a resident earned income tax rate of 1.00%. They work in Tilden Township which has a nonresident earned income tax rate of 1.00%. The employer in this situation would be required to withhold 1.00% from this employee and remit it to the tax collector for Tilden Township, which in this case is Berks Earned Income Tax Bureau. The Local Services Tax will be reviewed later in this guide. 8

11 Philadelphia Rules The city of Philadelphia imposes a tax on all those working in the city. Employers are required to withhold the full rate for residents and a reduced rate for nonresidents. Philadelphia is not part of Act 32, so Pennsylvania employers with employees either working or living in Philadelphia are required to withhold the tax and remit it directly to Philadelphia. Here are the possible Philadelphia scenarios: Possible Scenario Employees work and live in Philadelphia Employees work in Philadelphia and live in another Pennsylvania local Employees work in Philadelphia and live in another state Employees work in another Pennsylvania local and live in Philadelphia Employees work out of state and live in Philadelphia Requirements Employer is required to withhold the Philadelphia resident tax and remit it to Philadelphia Employer is required to withhold the Philadelphia nonresident tax and remit it to Philadelphia Employer is required to withhold the Philadelphia nonresident tax and remit it to Philadelphia Employer is required to withhold the Philadelphia resident tax and remit it to Philadelphia Employer is not required to withhold the Philadelphia resident tax, but can do so as a courtesy 9

12 Pittsburgh Payroll Expense Tax Pittsburgh s Payroll Expense Tax is levied on employers and is separate from the earned income tax. The rate of.55% (or.0055) of payroll expense generated as a result of an employer conducting business within the City of Pittsburgh must be paid quarterly. For more information: 10

13 Local Services Tax (LST) In addition to the Earned Income Tax (EIT), many Pennsylvania localities also impose a Local Services Tax (LST), formerly known as the Occupational Privilege Tax (OPT) or Emergency Municipal Services Tax (EMST). All employers with work sites within the taxing jurisdiction are required to deduct the LST from their employees at the site of employment. The total LST paid by any taxpayer in a calendar year remains limited to $52, regardless of the number of political subdivisions in which an individual works during the year. Employees who earn less than $12,000 are exempt from the tax in jurisdictions that levy an LST at a rate that exceeds $10. If the LST exceeds $10, the tax must be assessed and collected on a pro-rata basis determined by the number of payroll periods established by an employer for a calendar year. The pro-rata share of the tax assessed on each taxpayer for a payroll period is calculated by dividing the combined rate of the LST by the number of payroll periods established by the employer for the calendar year. For instance, a $52 tax would be collected at $1 per week for taxpayers paid weekly. Employers are only required to withhold the LST on a payroll period basis for those payroll periods in which the taxpayer is employed. Employers must remit withheld taxes to the designated tax collector 30 days after the end of each calendar quarter. 11

14 For more information on this and other Pennsylvania taxes, go to Type Local Services Tax in the search box to get the screen shown below. Below you will find information on this tax, as well as links to related resources. 12

15 U.S. Census Bureau Website For situations in which the Pennsylvania website is unable to locate a specific address, the U.S. Census Bureau s website has an address search which can often help. Go to From the window above, click the street address link, near the right center. The window below will appear, allowing you to type in an address. 13

16 The window below will open and the county subdivision field will display the political subdivision. 14

17 Local Tax Quick Reference State Alabama Colorado Delaware Indiana Kentucky Maryland EE Paid ER Paid Worked In Lived In Additional Information The local taxes in Alabama are occupational license fees which must be withheld from employees working in the city or county. The cities in Colorado impose an occupational tax on employees and employers doing business in their city. This is a flat monthly tax paid by the employee and the employer. The city of Wilmington imposes a tax on employees working or living in the city. Employers doing business in Wilmington must withhold it from their employees working in Wilmington and employers in the state of Delaware must withhold it from any Wilmington residents. The counties in Indiana impose a tax on residents and employers in the state of Indiana must withhold it from any Indiana residents. These local taxes are filed with the Indiana state income tax. The local taxes in Kentucky are occupational license fees imposed by some cities and counties. Employers doing business in a city and/or county with a tax must withhold the tax from any employees working there. The local taxes in Maryland are withheld from residents of the cities and counties which impose a local tax and are combined with the Maryland state income tax. 15

18 Local Tax Quick Reference State Michigan Missouri New Jersey New York Ohio Oregon EE Paid ER Paid Worked In Lived In Additional Information The local taxes in Michigan are imposed on employees based on where they live and/or work. If they work and live in two different cities which both impose a tax, they are allowed a credit in each. Employers are only obligated to withhold any worked-in taxes. Kansas City and St. Louis impose a tax on employees working in either city or living in either city. Employers must withhold this tax if they are doing business in either city. The city of Newark imposes a tax on employers doing business in the city. Employers must withhold taxes from New York City and Yonkers residents and from employees working in Yonkers. The local taxes in Ohio are imposed on employees working and/or living in a city with a tax. Many cities will allow resident credits to employees working and paying tax in a different city. The full tax rate must always be paid to the worked-in city. Employers are only obligated to withhold any worked-in taxes. The local taxes in Oregon are transportation taxes imposed on employers doing business in the state of Oregon. Oregon also has a Worker s Benefit Fund which is paid by both employees and employers. 16

19 Local Tax Quick Reference State Pennsylvania EE Paid ER Paid Worked In Lived In Additional Information The Earned Income Tax is withheld from residents based on where they work and then forwarded to their resident municipality by the worked-in tax collector. The Local Services tax is withheld from employees based on where they work. 17