Gear Up Now for New Pennsylvania Local Earned Income Tax Withholding Requirements "Act 32"
Act 32, signed into law in 2008, makes sweeping changes to Pennsylvania's local earned income tax (EIT) collection process. These changes have already been adopted by Chester, Lancaster, Lebanon and Wyoming Counties and will go into effect for the remaining counties (except Philadelphia County) for year 2012. The new law mandates EIT withholding even if the employer is located in a jurisdiction with no EIT tax. More importantly, employers are required to withhold tax at the higher of either: 1) the EIT tax rate for the employer's jurisdiction or 2) the resident EIT tax rate where the employee resides. Since the EIT is a trust fund tax, you could be personally liable for under withheld amounts.
What you need to do before 2012:
- Employers need to make sure they are registered with their county's designated tax collector. We expect that most employers will be receiving a mailing from their tax collector regarding their registration.
- Employees need to complete and sign a "Residency Certification" form which they then give to their employer. This form identifies the tax jurisdictions where the employee lives and works. The form can be downloaded now at www.newpa.com/webfm_send/1605.
- Employers will then need to look up the employee's resident tax rate, compare it to the employer's jurisdiction tax rate and withhold at the higher of the two rates in 2012.
Now is the time to become familiar with the new requirements and set up systems and procedures to capture the required information. We are available to help you should you require assistance.
We will continue to keep you abreast of the latest developments which impact you and your business and would be happy to answer any questions you may have concerning the above. Please contact our Tax Manager Terry Martin or call 215-675-8364.
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