Beginning January 1, 2012, Pennsylvania Act 32 becomes mandatory for employers. Is your business ready?
The Basics
Pennsylvania Act 32 of 2008 provided for a restructuring of the Earned Income Tax (EIT) Collection System for Pennsylvania Local governments and school districts. The Act provides a three year implementation plan with full implementation to be mandatory beginning January 1st, 2012.
The Act requires county wide participation for earned income tax collection including the establishment of new tax collection offices. Requirements of PA ACT 32 were effective January 1st, 2011 but not mandatory until 2012. Making sure your business is registered completes half the battle.
Getting Started
To register, you need to first identify your tax collection office (TCO) which is determined by your county. Once your TCO has been determined, complete the paperwork necessary to register yourself as an employer with that TCO. The paperwork includes your EIN (Employer Identification Number) and contact information and can easily be found on the TCO’s website. Once processed by the TCO, you will be assigned a local employer number.
In addition to registering your business with your local tax collection office, beginning in the fourth quarter, our firm suggests having your employees complete the Certificate of Residency. This certificate should be treated like the Federal Form w-4 which is mandatory to be filled out and submitted at the time of hire for new employees. A new certificate must be completed whenever an employee changes residency.
Certificates should be maintained by the employee, employer and also on file at the Tax Collection Office. If you are using a third party payroll provider, you will be required to provide a copy of the certificate for each employee to your administrator in the fourth quarter of 2011. In turn, they will be providing a copy to the tax collection bureau on your behalf. We are also suggesting the employers maintain copies of employee’s certificates.
Certificate of Residency
Below is a link to directly connect you to a copy of the Certificate of Residency form which must be completed by each and every Pennsylvania Employee.
http://www.newpa.com/webfm_send/1605
PSD Code
The PSD Code section of the Certificate of Residency Form should be completed by the employee. The following link can help the employee determine their school district, municipality and localities tax rates.
http://www.newpa.com/webfm_send/1627
Local Tax Rates
Lastly, if you are unsure what your local withholding rate is or which municipality your home or office is located, the following website allows you to enter in your personal information and assists you in identifying your county, school district and withholding rates.
http://munstatspa.dced.state.pa.us/FindLocalTax.aspx
Act 32 is helping to assist local governments in obtaining their tax dollars evenly and more consistently throughout the year. The Act has also helped authorities standardize collecting processes and streamline withholding requirements. Although the Act is helping local governments, it is placing the burden on the employers. Making sure your payroll processing system or contacting your payroll provider and making sure they are ready to comply is half the battle.
Using the certificate of residencies, employers must now take into consideration both the employee’s place of residence and place of employment, then pick the locality with the higher rate. Previously, employers were only required to withhold for the place of employment. Since resident rates are generally higher than the nonresident rates, withholding would now need to be done for the employees' resident locality instead of the work locality and employers would need to change the local tax assignments in their payroll systems for most of the employees.
If you have questions, please feel free to contact me.
I am an employer in Washington, DC with two employees in PA. Do I need to be concerned with the PA Act 32 payroll changes? Thank you.
Posted by: L Patton | September 22, 2011 at 10:08 AM
Dear McKonly and Asbury,
I am a West Virgina resident working in Pennsylvania. In WV, school taxes are incorporated into our state tax. No local school taxes are collected. My employer states that they are required to withhold school taxes according to Act 32. Is there a way to keep my employer from withholding this Tax? Is there a form that can be filled out that will cover my employer from penalty?
Thank you,
Greg Robinson
Posted by: Greg Robinson | October 20, 2011 at 11:14 AM
Does a residency certificate have to be completed for employees who are Pennsylvania residents working in another state?
Posted by: Suzanne DiBiaggio | November 08, 2011 at 09:40 AM
How will the employee get a refund?
Posted by: [email protected] | November 15, 2011 at 12:20 PM
Does a residency certificate have to be completed for employees who are Pennsylvania residents working in another state? Maryland
Posted by: K Robinson | November 17, 2011 at 04:06 PM
What is the wage basis for EIT? If the tax is not based on gross wages, what types of deductions can be used to reduce the taxable wage basis?
Posted by: Janet | January 31, 2012 at 07:04 PM