Pennsylvania's Act 32 to go into effect
on January 1, 2012

YOU MUST IMMEDIATELY PREPARE TO MAKE CHANGES
TO YOUR CURRENT PAYROLL REPORTING SYSTEMS:

Pennsylvania Law Act 32, signed by Governor Rendell in 2008, made sweeping changes to the manner in which local earned income taxes are to be collected and remitted in the Commonwealth. The law’s provisions take effect January 1, 2012.

OVERVIEW

Starting January 1, 2012:

  1. Local earned incomes taxes will be remitted to tax collection agencies based upon county jurisdictions. Throughout the Commonwealth local earned income taxes will be reported to taxing jurisdictions primarily based upon the geographic borders of a county.
  2. You may have a local tax withholding requirement, even if your business is not located in a taxing jurisdiction. Even if your business is not located in a jurisdiction that requires withholding of local earned income taxes, you will be required to withhold local earned income taxes for any employee that resides in a taxing jurisdiction.
  3. Withholding responsibility is now squarely on the employer’s shoulders. Employers will have a greater responsibility both for withholding the tax and for withholding at the correct tax rate. A penalty system has been established for failing to comply.
  4. Your employees must provide you with a new standard form. Your current employees must provide you with a completed “Residency Certificate Form” by January 1, 2012. This form will be used to determine if the employee has a withholding requirement and the correct rate of withholding.
  5. You may need to register with the appropriate tax collection agency. If you currently do not file any local earned income tax returns, you will need to register with the appropriate tax collector within 15 days after the beginning of the New Year. Contact the collectors noted below for registration forms. There is no need to register if you are already withholding and remitting local earned income taxes.

Local earned income taxes will be remitted to
tax collection agencies based upon county jurisdiction

Before the enactment of this law there were 2,900 taxing jurisdictions; now there are 69. With the exception of wages subject to Philadelphia withholding, all of an employer’s local earned income tax withholding will be remitted to a single tax collection agency that is based upon the county in which the business operates. Each jurisdiction (known as Tax Collection District or TCD) will hire a collector to carry out collection activity on behalf of the jurisdiction. The tax collection agencies for counties in the Delaware Valley for 2012 are as follows:

  • Bucks County – Keystone Collections Group ( www.keystonecollects.com )
  • Montgomery County – Berkheimer Tax Administrator ( www.hab-inc.com )
  • Chester County - Keystone Collections Group ( www.keystonecollects.com )
  • Delaware County – Centax ( www.centaxgroup.com )
  • Philadelphia – Not Applicable. Philadelphia is exempt from Act 32. Businesses should continue to remit and file Philadelphia wage taxes to the Philadelphia Department of Revenue.

For the remainder of 2011, you should continue to remit and file returns to the tax collector you are currently filing with. Beginning in 2012, you may need to change tax collectors.

In situations where the taxing jurisdiction has changed tax collector, you will be contacted by the new collector with filing instructions. When an employer mistakenly remits tax and files returns to the “old” collector, that collector will forward the returns and funds to the proper collector and notify you of the change. As long as you have filed and paid timely, you should not be penalized, even if paid to and filed with the wrong collector.

You may have a local tax withholding requirement
even if your business is not located in a taxing jurisdiction

The employer is responsible for withholding and remitting any and all employee local earned income tax. Act 32 requires employers to withhold at the “greater” of the employee’s resident tax rate (where the employee lives), or the employer’s nonresident tax rate (where the employee works). If a business’s taxing jurisdiction has no local earned income tax, the employer is still responsible to collect and remit the local earned income tax of an employee’s resident jurisdiction.

WITHHOLDING RESPONSIBILITY IS NOW SQUARELY
ON THE EMPLOYER'S SHOULDERS

Failure to make a good faith effort to determine and withhold at the correct tax rate subjects the employer to penalties and fines

Your employees must provide you with a new standard form

Under the new law, each employee must furnish his or her employer with a Residency Certification Form by the beginning of 2012. A copy of the Residency Certificate Form is attached. Click here to access the form.

Both the employee and the employer are responsible for completing certain portions of the form. Each employee is required to complete the “Employee Information-Residence Location” portion located at the top of the form, excluding the grey-barred information (PSD Code and Total Resident EIT Rate). The employee must also complete the Certification portion of the form and return it to his or her employer. The employer is required to complete the Employer Information – Employer Location portion of the form. The employer is also required to complete the grey-barred information sections (PSD Codes and applicable EIT Rates) for both the employee and the employer. The applicable PSD codes and rates can be obtained from the Pennsylvania governmental website (discussed below). The completed Residency Certificate must be retained by the employer; it does not need to be provided to the tax collector.

The employer will need to visit two different Pennsylvania state websites in order to determine the appropriate PSD (Political Subdivision) codes, and the respective locality’s tax rates and the employer’s applicable tax collector.

  1. For each employee’s Residency Certificate Form, look up the employee’s Political Subdivision Codes (PSD) and local tax withholding rates based the addresses provided on the form.
    1. To determine the employee’s and the employer’s PSD Codes, go to the following website (http://www.newpa.com/get-local-gov-support/municipal-statistics ) and look up the PSD Codes on the spreadsheet provided, based upon the employee’s address and the employer’s address as noted on the Residency form. Enter both the employer’s and the employee’s PSD Codes on the Residency form.
    2. To determine the applicable withholding rates, go to the following website (http://munstatspa.dced.state.pa.us/findlocaltax.aspx ) and enter the employer’s and employee’s addresses.  The website will provide both the employer’s and employee’s tax rates for both the municipality and the school district.  Enter both the employer’s and the employee’s tax rates on the Residency form.

You may need to register with the appropriate
tax collection agency

If the business is required to withhold and remit local earned income tax, and is not currently registered to do so; it must register with the Tax Collector in their Tax Collection District (TCD) with 15 days after the New Year.

The tax collectors will mail you blank forms to use in preparing the quarterly filings. Larger businesses are encouraged to electronic file their Earned Income Tax returns. Directions on how to do this are on the respective tax collection agency’s website.

  • The information provided on the Residency Certificate, namely the PSD Codes and tax rates will be used for completion of the quarterly local tax filings.

Coordinate with you business’s payroll service provider (or internal accounting department) to withhold and remit the tax. Remember, employers are required to withhold at the “greater” of the employee’s resident tax rate (where they live), or the employer’s nonresident tax rate (where they work).

We will continue to keep you updated on the latest developments which may impact you and your business and will 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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