The purpose of this article is to provide information regarding the types of Pennsylvania Local payroll taxes and the calculation method for the liability.  This article is not intended as a comprehensive guide to all PA Local payroll tax situations but instead to assist you in understanding the general tax calculation parameters.

Employers with worksites located in Pennsylvania are required to withhold and remit the local Earned Income Tax (EIT) and Local Services Tax (LST) on behalf of their employees working in PA.   To administer these taxes the state has been divided into political subdivisions (PSDs) and these PSDs uniquely identify each municipality in Pennsylvania.  These 6 digit PSD Codes play an integral role in assisting employers and Tax Officers to remit and distribute the correct amount of local Earned Income Tax to the appropriate taxing jurisdictions. 

The state has provided the following tool to help determine the appropriate PSD codes based on the EEs resident and work locations.

Municipal Statistics
This site allows you to enter the resident and work location addresses for the EE and based on this information the site provides the home and work taxing authorities, PSD Codes, EIT and LST rates, total taxes to be withheld and tax collectors.
 

How PA Local Taxes are Calculated

EIT Taxes are imposed by the EEs resident municipality but are collected by the work location municipality. The total EIT rate for the PSD code will include taxation for both the municipality and the School District, if applicable.  An individual employee’s local EIT Rate is determined by comparing the employee’s Resident EIT Rate to the Work Location Non-Resident EIT Rate. The applicable EIT rate to be withheld is always the higher of the two rates.   This rate will also be displayed in the total taxes to be withheld section of the Municipal Statistics site.

LST Taxes are imposed by the EE work municipality.  It is due quarterly on a prorated basis determined by the number of pay periods for a calendar year and is generally $1.00 per week.

Exceptions and Special Circumstances:

Philadelphia imposes a City Wage Tax on earnings applied to payments that an individual receives from an employer for work or services.  All Philadelphia residents owe the City Wage Tax, regardless of where they work. Non-residents who work in Philadelphia must also pay the Wage Tax. 

Out of State EE’s who work in PA but reside out of state: ERs are required to withhold at the non-resident rate for the municipality where the EE works and report the wages to the generic PSD Code 880000. Out of State EE’s who reside in PA but work out of state: ERs may elect to withhold the resident rate for the municipality where the EE lives; this is reported to a generic PSD code of 880000.  This is considered a “Courtesy WH” but Employdrive recommends these taxes be withheld as a best practice.

Mandatory Low-Income Exemption. Political subdivisions that levy an LST at a rate that exceeds $10 must exempt from the tax taxpayers whose total earned income from all sources within the PSD is less than $12,000.  ERs are required to stop withholding the LST if an EE provides an exemption certification. Employers must “restart” withholding the LST from an employee who files an exemption certificate in the following circumstances:

1. If instructed to do so by the political subdivision levying the LST;
2. If notified by the employee that they are on longer eligible for the exemption; or
3. If the employer pays the employee more than $12,000 for the calendar year.

Examples

Let’s assume Robin lives in Carlisle, PA, works in Dillsburg, PA and has taxable wages of $1,000.00 and is paid weekly.

Work Location: PSD 670703, Dillsburg, has a non –resident municipal EIT rate of 1% and a LST rate of $52.00 annually. 

Resident Location: PSD 210402, Carlisle, has a municipal EIT rate of 0.5% and a school district EIT rate of 1.1% for a total resident EIT rate of 1.6%.

isolved will compare the resident and non-resident EIT rates and WH at the higher of the two rates.  $1,000.00 x 1.6% = $16.00

isolved will then calculate the LST withholding based on the number of pay periods in the year for the EE.  $52.00 / 52 = $1.00

Robin will pay $16.00 for EIT filed and remitted to PSD 670703 with the resident PSD code of 210402; and $1.00 for LST per pay period filed and remitted to PSD 670703.

Now let’s assume Robin moves and changes jobs; they now live in Dillsburg and work in Carlisle:

Work Location: PSD 210402, Carlisle has a non–resident municipal EIT rate of 1.0% and a LST rate of $52.00 annually. 

Resident Location: PSD 670703, Dillsburg has a municipal EIT rate of 0.5% and a school district EIT rate of 0.75% for a total resident EIT rate of 1.25%.

isolved will compare the resident and non-resident EIT rates and WH at the higher of the two rates.  $1,000.00 x 1.25% = $12.50

isolved will then calculate the LST withholding based on the number of pay periods in the year for the EE.  $52.00 / 52 = $1.00

Robin will pay $12.50 for EIT filed and remitted to PSD 210402 with the resident PSD code of 670703; and $1.00 for LST per pay period filed and remitted to PSD 210402.

Robin has moved and now works in Carlisle and lives in Maryland:

Work Location:  PSD 210402, Carlisle has a non–resident municipal EIT rate of 1.0% and a LST rate of $52.00 annually. 

Resident Location: Maryland (local taxes collected with state withholding)

Isolved will calculate the municipal EIT taxes based on the work location rate: $1,000.00 x 1.0% = $10.00

isolved will then calculate the LST withholding based on the number of pay periods in the year for the EE.  $52.00 / 52 = $1.00

Robin will pay $10.00 for EIT filed and remitted to PSD 210402 with the resident PSD code of 880000; and $1.00 for LST per pay period filed and remitted 210402.

Robin has moved again and now works in Maryland and lives in Carlisle:

Work Location:  Maryland (local taxes collected with state withholding)

Resident Location: PSD 210402, Carlisle, has a municipal EIT rate of 0.5% and a school district EIT rate of 1.1% for a total resident EIT rate of 1.6%.

Isolved will calculate the municipal EIT taxes based on the resident location rate: $1,000.00 x 1.6% = $16.00

Robin will pay $16.00 for EIT filed and remitted to PSD 880000 with the resident PSD code of 210402; and has no liability for LST.