Act 32 Information
In 2008, the Commonwealth of Pennsylvania amended the Local Tax Enabling Act (“LTEA”), better known as Act 511 of 1965 to streamline and reform the local earned income tax collection system. This has resulted in major changes to the manner in which you will be required to withhold and remit earned income taxes on behalf of your employees.
The changes to the law require that all taxing bodies within each county choose one tax collector to administer the earned income tax for that county. As of January 1, 2012, all employers/self-reporting individuals will be required to file the taxes due with the county’s chosen administrator.
NOTE: Act 32 places the responsibility on the employer to assure that the proper rate is being withheld from each of its employees. Failure to do so could result in the employer being liable for any taxes due. Failure to comply with the changes, as mandated by Act 32, can result in fines and delinquent fees being assessed to both the individual and employer.
If an employee lives or works in the City of Philadelphia, employers should withhold the Philadelphia Wage Tax. Since the City of Philadelphia is under a separate Act (Sterling Act), it is not subject to Act 32 provisions.
What employers need to do as a result of Act 32?
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Register with the appropriate tax collector (if necessary).
Employers should ensure that they are registered with the appropriate Certified Tax Collector for their area.To determine the appropriate tax collector for your place of business, go to http://munstatspa.dced.state.pa.us/, and indicate your county or municipality.
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Have each Pennsylvania-based worker complete a “Residency Certification Form”.
This form can be found on the DCED’s website at www.newpa.com/webfm_send/1605.
A properly completed certificate requires the appropriate Political Subdivision Code (PSD) for the employee’s locality in which they live in as well as work in.The certificate provides the information necessary to look up the appropriate PSD codes.The assigned PSD code for Pennsylvania local jurisdictions can be found at: http://munstatspa.dced.state.pa.us/FindLocalTax.aspx.
The form will need to be completed by all existing and new employees and will need to be updated any time an employee moves. The completed form is to be retained by the employer and is subject to audit by the tax administrator.
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Establish PSD codes and tax rates for each Pennsylvania-based worker.
All employers (except Philadelphia only employers) will be required to withhold the Local Earned Income Tax for all employees who either live or work in a Pennsylvania Tax Collection District.The withholding rate will be determined for each employee by comparing the applicable Local Earned Income Tax (EIT) rate where they work to the applicable Local EIT tax rate where they live.The higher of the two tax rates should be withheld by the employer and remitted to the Certified Tax Collector for the employer’s Pennsylvania locality.The assigned PSD code for Pennsylvania local jurisdictions can be found at: http://munstatspa.dced.state.pa.us/FindLocalTax.aspx.
Useful links related to this topic:
ACT 32 Step by Step Checklist
FAQs
Tax Collection Districts and Appointed Tax Officers/Collectors
ACT 32 PSD Codes
ACT 32: A Guide for Employers
PICPA website for Act 32
