PA Act 32: Employer and Employee Requirements
Understand the standardized process for local EIT withholding under PA Act 32. This guide clarifies the compliance responsibilities for both employers and employees.
Pennsylvania Act 32 is a state law that reshaped the collection of local Earned Income Tax (EIT). It simplifies and standardizes how this tax is withheld by employers and paid to local municipalities and school districts. The act established county-wide Tax Collection Districts, reducing the number of individual tax collectors to a smaller number of designated entities.
This legislation creates a more uniform system for managing local income taxes across most of the state. The City of Philadelphia is a notable exception, as it operates under a separate local tax system and is exempt from Act 32. For the rest of Pennsylvania, the law mandates employer withholding, standardizes forms, and sets clear guidelines for sending tax payments.
Key Concepts of Act 32
Act 32 created Tax Collection Districts (TCDs), most of which follow county lines, to consolidate the collection process. For each TCD, a single tax collector is appointed to receive all EIT payments for that district. This structure replaced a system where employers might have had to remit taxes to numerous local tax offices. The designated tax officer for a TCD is responsible for distributing the collected funds to the specific municipalities and school districts within their jurisdiction.
To ensure taxes are routed correctly, the state implemented Political Subdivision (PSD) codes. A PSD code is a unique, six-digit number assigned to each municipality that identifies the precise location for tax purposes. Employers use these codes to report withholdings accurately to the TCD’s tax officer. The Pennsylvania Department of Community and Economic Development (DCED) maintains an official online address lookup tool to find the correct PSD code for any address.
The law also established a uniform withholding requirement for employers based on a “higher of” rule. Employers must compare the EIT rate of the employee’s home municipality (resident rate) with the non-resident EIT rate of the municipality where the employer is located (work location rate). The employer is required to withhold tax at whichever of these two rates is higher.
Required Information and Forms for Employees
Employees comply with Act 32 by providing information to their employer on the Residency Certification Form. This standardized form is the primary tool used to gather the details an employer needs to implement the “higher of” withholding rule. It serves as an official record of the employee’s residence for local tax purposes.
To properly fill out the form, an employee must provide their full name, current home address, and Social Security number. The employee is also responsible for looking up and entering the six-digit PSD code for both their home municipality and their physical work location. An employee can use the DCED’s online finder tool to locate the correct PSD codes by entering their home and work addresses.
Once all information is transcribed onto the form, the employee signs and dates the certificate to attest to its accuracy. The completed form must be submitted to the employer. This is typically done by new hires as part of their initial paperwork and should be updated by the employee anytime they move to a new home address.
Employer Responsibilities and Procedures
Upon receiving a completed Residency Certification Form, an employer’s procedural obligations under Act 32 begin. The employer must collect and retain this form from every employee, as it provides the necessary PSD codes and tax rates. The employer’s primary responsibilities include:
- Calculating the correct EIT withholding amount for each employee by applying the “higher of” rule to the employee’s gross taxable earnings.
- Remitting the total EIT withheld from all employees to the single designated tax collector for the TCD where the business is located. These payments must be made at least quarterly.
- Filing a quarterly tax return with the tax collector that lists each employee, their Social Security number, gross wages paid, and the amount of EIT withheld.
- Submitting an annual reconciliation at the end of the year, which is a summary report that must match the totals from the quarterly filings and the amounts on employee W-2 forms.