PA Act 32 - January 1 updates

Overview

Updated 06/24/2021

 

Act 32 is a law that streamlines and standardizes the local earned income tax system. Act 32 reduces Pennsylvania’s number of Earned Income Tax (EIT) collectors from 560 to 21. The appointment of collection responsibility falls on countywide committees made up of representatives from local municipalities and school districts. The committees established tax collection districts and elected tax officers to collect the EIT. Act 32 requires uniform withholding of earned income taxes and remittance to a single local collector or Tax Officer.

 

Employers with worksites located in Pennsylvania are required to withhold and remit the local Earned Income Tax (EIT) and Local Services Tax (LST) on behalf of their employees working in PA. Examples of business worksites include, but are not limited to: factories, warehouses, branches, offices and residences of home-based employees.

 

The Pennsylvania Department of Community and Economic Development [DCED]. is a site where you can enter your employee’s home address and worksite address to find out which taxes should assign to your employee. In addition, it provides the resident and non-resident rate should your employee live and work in two different local tax jurisdictions.

 

As of your first payment with a check date in 2021, we will be calculating the tax amount and tracking the taxable wages on the non-resident jurisdiction to leverage tax filing through Greenshades of local PA taxes for withholdings [W/H] and local services taxes [LST]. We will still be doing the comparison of the resident and non-resident rates and pick the highest for the calculation [PA Act 32 requirement] but it will always be tracked on the non-resident tax. This document will step you through an example of where the resident rate is higher and how this will play out in Avionte.

 

http://munstats.pa.gov/Public/FindLocalTax.aspx

 

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Rate Calculations & System Set-Up

Below are the results of entering an employee’s home address and work address. Notice that the combined resident EIT rate is 3% and the non-resident rate is 1%. Since the resident rate is higher we will be calculating 3% for the employee but it will be seen on the non-resident tax of Hamilton Township which is where you are required to file the tax liabilities.

 

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When we look at the employee’s taxes in Avionte you will notice that the proper taxes got assigned to the employee. While the resident local withholding and resident school district assigned, you will never see a tax amount or taxable wages on resident taxes in Pennsylvania unless it is Philadelphia, PA. Philadelphia is part of the Sterling Act and does not follow the logic of PA Act32.

 

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Entering a 1/1/2021 check date will turn this new logic on.

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As we view the check for our employee below, we see that the $60.00 tax liability calculated on the non-resident jurisdiction of Hamilton Township.

 

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