Act 32 was enacted in 2008 with the objective of consolidating the collection of the local earned income tax (EIT) on a county-wide basis. PA (excluding Philadelphia) was streamlined from about 560 tax collectors into 69 Tax Collection Districts (TCD). Each TCD is controlled by a Tax Collection Committee (TCC). For years taxpayers and tax practitioners have been complaining about the inconsistency as to how the EIT was enforced by the tax collectors and local tax jurisdictions. Some collectors and tax jurisdictions made up their own rules and refused to follow case law. Some jurisdictions would not accept a generic EIT form or even a photocopy of their EIT return. The outcry of injustice became so loud that Act 32 was enacted to improve the collection process.
Act 32 affects all PA resident employees and every PA employer with employees. It also affects self-employed individuals filing a PA earned income tax return with a local tax jurisdiction. For some, the Act is effective January 1, 2011; for others, it is effective January 1, 2012.
This law requires that employers withhold EIT at the higher rate of either the non-resident rate in the employer’s jurisdiction or the resident rate in the employee’s residence – a provision that was set to begin Jan. 1, 2012. The Chester County TCC voted for early implementation of the tax withholding provision and accordingly Chester County employers are required to adopt the new mandatory withholding rules effective January 1, 2011 (a year early). This new law allows collectors to penalize employers for improper or deficient withholding or late filing of the quarterly returns. On January 11, the Chester County TCC voted to waive all penalties and interest for the first two quarters of 2011 to allow employers time to comply with the new withholding requirements. There are counties other than Chester County that have and are considering early implementation of the withholding rules (e.g., Lebanon & Wyoming). Thus, employers must pay close attention to what is happening in their county and who is their 2011 tax collector.
Act 32 states that at the end of each calendar quarter, each employer will be required to . . .
- File a quarterly return with the designated tax collector and remit the amount of EIT deducted during the preceding calendar quarter.
- For employers with employees located in several TCDs, the employer will remit the EIT to the tax officer of the TCD in which the employer’s payroll operations are housed & will be required to remit electronically on a monthly basis.
- Employers are required to register with the appointed tax collector within 15 days of becoming an employer.
- Each employer will require each employee to complete a certificate of residency form that identifies the political subdivision where the employee works and resides. A copy of this form can be found on our website by CLICKING HERE. If an employee moves during the year, the employee must file an updated certificate of residency. A copy of this form should be retained by the employer along with the employee’s completed W-4, I-9 forms, direct deposit authorization forms, etc.
- The employer will be required to deduct the greater of the EIT rate where the employee works or resides. Whereas under the old rules employers were not required to withhold the EIT if the jurisdiction in which the employer was based did not have an EIT, now employers are required to withhold the local EIT for those jurisdictions in which their employees reside.
- EIT tax rates will be maintained by the Department of Community and Economic Development and published on its website (http://www.newpa.com/what-can-pa-do-for-you/about-dced)
