What Payroll Taxes Do Employers Pay in Pennsylvania?

Employers in Pennsylvania navigate a complex landscape of payroll tax obligations, extending beyond federal requirements to state and local mandates. Understanding these responsibilities is important for effective compliance and operational management. Businesses must account for taxes levied by the federal government, the Commonwealth of Pennsylvania, and local jurisdictions. This multi-layered tax structure requires accurate withholding and timely remittance.

Federal Employer Payroll Taxes

Employers are responsible for federal payroll taxes. These taxes contribute to social insurance programs and unemployment benefits. Compliance with these federal requirements is a prerequisite for all businesses with employees.

Federal Insurance Contributions Act (FICA) taxes fund Social Security and Medicare. For 2025, employers and employees each pay 6.2% for Social Security on wages up to $176,100. For Medicare tax, both employer and employee contribute 1.45% on all covered wages, with no wage base limit. An additional Medicare Tax of 0.9% applies to an employee’s wages exceeding $200,000, which is solely the employee’s responsibility and has no employer match.

The Federal Unemployment Tax Act (FUTA) contributes to a federal fund supporting state unemployment programs. The standard FUTA tax rate is 6.0% on the first $7,000 of each employee’s wages. Employers typically receive a credit of up to 5.4% against this tax for timely payments to state unemployment funds, effectively reducing their net FUTA tax rate to 0.6%. States that have not repaid federal advances for unemployment benefits may be subject to a FUTA credit reduction, which can increase the effective FUTA tax rate for employers in those states.

Pennsylvania Unemployment Compensation Tax

Pennsylvania employers contribute to the state’s Unemployment Compensation (UC) fund. This fund provides temporary financial assistance to eligible workers who lose their jobs through no fault of their own. The specific tax rate an employer pays is subject to annual adjustments based on various factors.

New employers in Pennsylvania are assigned a specific UC tax rate, which currently includes a base withholding rate of 3.822% for most industries, with a higher rate of 10.5924% for construction. These new employer rates also include a surcharge adjustment that can change annually. After a period of operation, an employer’s UC tax rate is determined by an “experience rating,” which reflects their history of unemployment claims. This rating system incentivizes stable employment practices, as employers with fewer former employees collecting benefits generally receive lower rates.

The Pennsylvania UC tax applies to a wage base of $10,000 per employee annually for employers. For employee contributions, the wages subject to unemployment contributions are unlimited. Employers must register with the Pennsylvania Department of Labor & Industry for UC tax purposes, a process often completed online through platforms like myPATH. UC taxes are typically filed and paid on a quarterly basis.

Pennsylvania State Income Tax Withholding

Employers in Pennsylvania withhold state income tax from employee wages. This is an employee tax that the employer collects and remits to the state on the employee’s behalf. Pennsylvania maintains a flat income tax rate, simplifying some aspects of the calculation.

The flat tax rate for Pennsylvania personal income tax is 3.07% for 2025. This rate applies uniformly to all taxable earned income, regardless of the employee’s income level.

Businesses must register with the Pennsylvania Department of Revenue for employer withholding, commonly done through myPATH. This registration provides a unique account number and determines filing frequency. Remittance frequency varies based on the total tax withheld; smaller amounts may be remitted quarterly, larger amounts monthly or semi-weekly.

Key forms involved in this process include PA-W3 and PA-501. Employers must also submit W-2 wage records and annual reconciliation statements (REV-1667) by January 31 following the tax year.

Pennsylvania Local Payroll Taxes

Local payroll taxes in Pennsylvania vary by municipal and school district jurisdictions. These local taxes primarily consist of the Local Earned Income Tax (EIT) and the Local Services Tax (LST).

Identifying Applicable Local Taxes

Determining which local taxes apply to a business and its employees requires careful consideration of both the employee’s resident municipality and the employer’s work location municipality. Pennsylvania’s Act 32 legislation standardized the collection of local earned income taxes by reducing the number of tax collectors and establishing Tax Collection Districts (TCDs). A crucial tool in this identification process is the Political Subdivision (PSD) Code.

The PSD Code is a six-digit number assigned to each municipality and is essential for identifying the correct tax collector and applicable tax rates. Employers can utilize resources provided by the Pennsylvania Department of Community and Economic Development (DCED), such as their address search application, to look up PSD codes, EIT rates, and LST rates based on specific addresses. Once identified, employers must obtain a local tax ID number by registering with the appropriate local tax collector.

Local Earned Income Tax

The Local Earned Income Tax (EIT) is a tax levied on an individual’s earned income. This tax supports local municipal and school district services. Unlike the state income tax, EIT rates are not uniform across Pennsylvania.

EIT rates vary by municipality, typically ranging from 0.5% to 3% of earned income. The specific rate applied depends on the employee’s resident municipality and the municipality where the work is performed. Employers are usually required to withhold the higher of the employee’s resident EIT rate or the non-resident EIT rate of the work location.

Local Services Tax

The Local Services Tax (LST) is a flat-rate tax imposed on individuals who work within a municipality that levies the tax. This tax contributes to local services such as police, fire protection, and road maintenance.

The maximum annual amount for the LST is $52, although some municipalities may impose a lower rate. This tax is generally withheld on a pro-rata basis per pay period, meaning small portions are deducted from each paycheck throughout the year. The LST includes a low-income exemption: if a municipality’s LST rate exceeds $10, employees whose total earned income and net profits from all sources within that municipality are less than $12,000 annually are exempt. Exempt employees typically need to provide an upfront exemption form to their employer.

Remitting Local Taxes

After identifying and calculating local taxes, employers remit EIT and LST payments to the designated local tax collector, rather than directly to the state. The tax collector is the entity responsible for collecting these local taxes on behalf of municipalities and school districts.

Prominent local tax collectors in Pennsylvania include entities like Berkheimer and Keystone Collections Group, though numerous smaller, local tax officers also exist. These collectors often provide online portals for employers to file returns and make payments. Employers are typically required to file and remit withheld local taxes within 30 days after the end of each calendar quarter. Annual reconciliation forms, such as the W2-R, are also due to the appropriate local tax collector by February 28 following the close of the calendar year.