In 2008, Pennsylvania lawmakers passed Act 32, which completely restructured and significantly changed the withholding, reporting and collection of local earned income taxes.  Act 32 goes into full effect on January 1, 2012 and will have an impact on all business taxpayers. 

Prior to passage of the Act, the earned income tax collection process was complex and confusing.  The provisions of Act 32 will streamline this process by standardizing forms and definitions and by consolidating tax collectors.  All individual taxpayers in Pennsylvania will file the same local earned income tax return at the end of each year and all business taxpayers will file the same local earned income tax withholding returns each quarter or month, no matter where they or their employees reside.  In addition, each county will have one designated earned income tax collector.  This will decrease the number of tax collectors from about 560 to about 21!  The tax collector in each county will be responsible for forwarding tax payments received by each business to the appropriate municipalities.

All employers will be required to withhold and remit local earned income taxes for all employees.  Each employee will be required to complete a certificate of residency form.  The tax rate that each employer will use to withhold tax for each employee will also change.  The employer will use the higher of 1) the rate for the municipality in which the business is located or 2) the rate for the municipality in which the employee lives.

Pennsylvania’s Department of Community and Economic Development (DCED) oversees the implementation of the changes required by Act 32.  To obtain more information from the DCED, including access to the newly required Residency Certification Form, visit http://www.newpa.com/get-local-gov-support/tax-information/dceds-act-32-eit-collection-system.

If you have questions or would like assistance with the implementation of these changes in your business, please contact our office and we will be glad to help.