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PA Local Earned Income Tax - Act 32: What Is It, When Is It Effective & Who Does it Affect?

Pennsylvania Act 32 will implement many new local earned income tax (EIT) collection changes starting January 1, 2012. The new law mandates EIT withholding by all PA employers (except those located only within the City of Philadelphia.) The key provision of Act 32 is that employers are required to withhold tax at the higher of either: 1) the nonresident tax rate that is imposed by the jurisdiction where the employee works or 2) the resident EIT rate where the employee resides.  Since the EIT is a trust fund tax, employers can be subject to fines and penalties for failure to properly withhold and remit EIT. 

Act 32 affects all PA employees and every PA employer (outside of Philadelphia.)

The History

Act 32 consolidates the collection of the local earned income tax (EIT) on a county-wide basis. PA was streamlined from about 560 tax collectors into 69 Tax Collection Districts (TCD)...

 What you need to do before 2012:

• Employers need to make sure they are registered with their county's designated tax collector. (Allegheny County is divided into 4 districts)
• All employees must complete and sign a "Residency Certification" form and submit it to their employer.  This form identifies the tax jurisdictions where the employee lives and works, and it must be updated whenever this information changes. This can be especially complicated for employees who move from one temporary work location to another (such as construction job sites.)
• Employers will then need to look up the employee's resident tax rate, compare it to the employer's jurisdiction (work location) nonresident tax rate and withhold at the higher of the two rates starting January 1, 2012. The applicable tax rates are found at PA's website (http://munstatspa.dced.state.pa.us/Registers.aspx.)

 The implementation deadline is rapidly approaching.  At Alpern Rosenthal, our business advisors are available to assist you if you have questions.

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