As a business owner or employee in Pennsylvania, navigating local taxes can be a bewildering process, whether it’s determining PSD codes, local services tax, local earned income tax in PA, or other responsibilities required for local tax compliance in Pennsylvania.
In this article, we will help clarify the process of local tax filing in Pennsylvania to show you how to file local taxes in PA with a clear understanding of your responsibilities based on residency, worksite jurisdiction, income and other factors. We’ll also provide access to all of the external resources you need to ensure ongoing legal compliance and financial well-being, including CAVU’s Pennsylvania Payroll Solution, which is tailored to support businesses operating throughout Pennsylvania.
Local Income Taxes in Pennsylvania (PA)
If you are an employer that operates a worksite in Pennsylvania (office, branch, warehouse, factory, or even the residence of a remote employee), you are required to withhold and remit Pennsylvania local income taxes.
Pennsylvania requires two local taxes, including Local Services Tax (LST) that applies to select locations and Earned Income Tax (EIT), which must be paid by all employees who work in Pennsylvania.
As an employer with a worksite or worksites in Pennsylvania, you will need to complete the following steps to remain compliant with Pennsylvania Department of Community and Economic Development requirements regarding local income taxes:
- Determine your PSD (political subdivision) codes and related tax rates. Your political subdivision code is a location-based 6-digit number that designates an employee’s local tax rate. Pennsylvania’s DCED provides a digital resource – the Address Search Application – to help employers determine PSD codes, as well as related LST and EIT rates. Information gathered from this step can be applied to complete other PA local tax forms.
- Register your business with the appropriate local agency or acquire your local tax ID number by completing and submitting the Employer Registration for Local Earned Income Tax Withholding form. All tax collection districts (TCD) are listed at the bottom of the document with associated codes provided based on municipality.
- Complete a Residency Certification Form for each applicable employee and retain copies of completed forms as part of your tax and payroll recordkeeping.
Earned Income Tax (EIT) and Employer Responsibility
Employers operating in Pennsylvania are required to complete the Residency Certification Form for each employee and use the employee’s work and residential information to determine their EIT rate. Here are the general guidelines for determining EIT rate in Pennsylvania:
- If an employee works and resides in Pennsylvania, you should withhold the higher of the two EIT rates: either the Work Location Non-Resident EIT Rate or the Total Resident EIT rate (based on the municipality where the employee resides).
- If an employee works in Pennsylvania but resides outside of Pennsylvania, you should use the Work Location Non-Resident EIT Rate for withholding.
- If your employee resides in Pennsylvania, but works in a different state, you are not required to complete a Residency Certification Form. Some employers with employees who reside in Pennsylvania but work outside of the state still elect to withhold each employee’s Total Resident EIT rate in addition to other federal and state withholdings. However, employees in this situation are technically required to handle the withholdings on their own and it remains their legal responsibility and liability.
Any withheld earned income taxes must be filed and remitted within 30 days after the close of each calendar quarter. If your business operates with multiple worksites in Pennsylvania, you have the option to file and remit monthly to a single tax collector.
To understand additional requirements for employees who travel to multiple worksites, work in Pennsylvania but reside elsewhere, and other less common situations, visit PA’s DCED website for more information.
Local Services Tax (LST) – Eligibility and Requirements
Some employers will have worksites that operate within an LST taxing jurisdiction. In this case, the employer is responsible for deducting the tax from employees based on the employment site/location.
Fortunately, it’s easy to determine whether the tax is required based on an employee’s municipality or school district. Visit PA’s Official Tax Register to see if LST/taxes apply to your and/or the employee’s area. If nothing is listed, you are not required to withhold LST on behalf of your employee(s).
It’s important to note that some employees within an LST taxing jurisdiction are not subject to LST withholding. Namely, if an employee earns less than $12,000 annually, they are considered exempt from LST if the total LST is more than $10 in a given year. Your employee(s) should provide you with an upfront exemption form if they qualify, but you are still required to withhold LST if they earn more than $12,000 annually, or you receive notification from the employee’s locality that LST must be withheld.
Similar to EIT requirements, employers must file and remit any withheld taxes no later than 30 days following the end of each calendar quarter. When school and municipal tax apply (and exceed $10 total), you can withhold and remit the combined amount.
To learn more about additional exemptions, exclusions, and other conditions that could affect your or your employees’ LST obligations, visit the Pennsylvania DCED website.
Simplify Payroll, Compliance, and Local Taxes
As your business and workforce grows, it’s increasingly challenging to ensure that your payroll, tax, and compliance processes are accurate and efficient. We offers specialized Pennsylvania Payroll support, leveraging local & state tax expertise and leading-edge software to keep your payroll process (including local taxes) streamlined, intuitive, and stress-free. Enjoy timely and accurate payroll with us.