What Is the Total Resident EIT Rate & How Is It Determined?

Earned Income Tax (EIT) is a local tax imposed on an individual’s gross wages, salaries, and net profits from businesses. This tax serves as a funding mechanism for local government services and public education within specific jurisdictions. This article explains what EIT is, how your rate is determined, how to calculate your tax, and how to pay it.

Understanding Earned Income Tax

Earned Income Tax (EIT) is a local tax applied to compensation received from employment and net earnings from self-employment. This includes wages, salaries, commissions, bonuses, and tips. It is a distinct tax from federal or state income taxes, levied at the municipal and school district levels to support local services. The term “resident” in the context of EIT refers to an individual’s primary place of dwelling or domicile within a specific local taxing jurisdiction, such as a city, township, or borough.

Taxable EIT income generally encompasses all forms of compensation for services. This includes W-2 wages, as well as net profits reported on Schedule C for sole proprietors, and partnership income. If you operate a business, the net profit after deducting ordinary and necessary business expenses is typically subject to EIT.

Conversely, certain types of income are typically not subject to EIT. These commonly include passive income sources like interest, dividends, and capital gains from investments. Retirement income, including Social Security benefits and distributions from qualified pension plans, is also generally exempt. Additionally, unemployment compensation and certain disability payments are usually not considered earned income for EIT purposes.

How the Total Resident EIT Rate is Determined

EIT rates are established at the local level by governmental entities. These local taxing authorities typically include municipalities, such as cities, townships, and boroughs, and local school districts. Each of these entities can set its own EIT rate.

Your “total resident EIT rate” is often a combined rate, consisting of a municipal rate and a school district rate. These rates are distinct and are added together to form your overall EIT rate. For instance, a municipality might impose a 0.5% rate, and the school district serving that area might impose a 1.2% rate, resulting in a total resident EIT rate of 1.7%.

EIT rates can vary significantly depending on your specific local jurisdiction. Your total rate is directly tied to where you reside, meaning individuals living in different municipalities or school districts may have different EIT rates.

To determine your specific total resident EIT rate, you can typically consult local tax collector websites. Many jurisdictions also provide online tools or resources, often through state Department of Community and Economic Development websites, that allow you to look up your rate based on your address. Alternatively, you can directly contact your local tax collector or a designated tax collection agency for accurate rate information.

Calculating Your EIT Obligation

Calculating your EIT obligation involves applying your total resident EIT rate to your taxable earned income. This is generally a straightforward calculation where the determined rate is multiplied by the total amount of your earned income. The result is the amount of EIT you owe.

EIT is typically levied on your gross earned income before any deductions for federal or state income taxes, 401(k) contributions, or other pre-tax deductions are considered. This means the tax is applied to your income before many common payroll deductions reduce your take-home pay. Unlike federal or state income taxes, EIT generally does not allow for standard deductions, itemized deductions, or personal exemptions, simplifying the calculation process.

For self-employed individuals or those with business net profits, EIT is applied to the net profit of the business. This net profit is determined after deducting all ordinary and necessary business expenses from gross business income. This calculation ensures that the tax is based on the actual income generated by the business activity.

For example, if your total resident EIT rate is 1.5% and your annual taxable earned income is $50,000, your EIT obligation would be $750 ($50,000 0.015). If you are self-employed with $60,000 in gross business income and $10,000 in allowable business expenses, your net profit of $50,000 would be subject to the same 1.5% EIT rate, also resulting in a $750 obligation.

Paying Your Earned Income Tax

Fulfilling EIT obligations involves specific payment and filing procedures. For most employees, EIT is handled through employer withholding. Employers are generally required to deduct the appropriate EIT amount directly from an employee’s paychecks and remit these funds to the designated local tax collector or collection agency. This ensures a consistent payment stream throughout the year.

Self-employed individuals or those with earned income not subject to employer withholding (e.g., freelancing) must make estimated EIT payments throughout the year. These payments are often due quarterly, similar to federal estimated taxes, to ensure that tax obligations are met as income is earned. Common quarterly due dates include April 15, June 15, September 15, and January 15 of the following year.

Regardless of withholding or estimated payments, most residents must file an annual EIT return. This return reconciles your total earned income for the year with the EIT amount that was paid through withholding or estimated payments. An annual filing ensures that any underpayments are settled or overpayments are refunded.

Annual EIT returns are due by April 15 of the year following the tax year, aligning with the federal income tax deadline. Returns can usually be filed directly with your local tax collector or through a designated tax collection agency, often with options for online submission or mail. Extensions to file may be available, but they do not extend the time to pay any tax due.