Beginning January 1, 2012, Pennsylvania Act 32 became mandatory for employers.
The Basics – for Employers
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 provided a three year implementation plan with full implementation beginning January 1, 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 are mandatory. Making sure your business is registered completes half the battle.
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, you should have 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. Employers should maintain copies of employee’s certificates.
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.
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.
Please see the Lancaster County Tax Collection Bureau’s website for more detailed information and frequently asked questions.
Lancaster County Tax Collection Bureau Website
Employees must Complete a 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.
Certificate of Residency Form.
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.
Tax Rates and PSDs for Lancaster TCD
Tax Rates and PSD's for PA by County