Unlocking the Keystone: Your PA Payroll Tax Guide

Overview of PA Payroll Taxes

State Income Tax

Similarly to federal income taxes, employers must withhold state income tax from employees' paychecks. But unlike federal income taxes and most states, which have mandated withholding and rely on a withholding table that is updated every year, Pennsylvania's state income tax is a flat rate of 3.07% on personal income.

If an employee is a Pennsylvania resident, this tax must be withheld. Nonresident employees also must have Pennsylvania income tax withheld, unless they live in a state that is part of the reciprocity agreement:

• Indiana
• Maryland
• New Jersey
• Ohio
• Virginia
• West Virginia

The employee needs to fill out Form REV-419 to ensure that the correct state income tax is paid to the nonresident. However, if the nonresident employee lives in a state within commuting distance but is not part of the reciprocity agreement, like New York or Delaware, they still need to have 3.07% Pennsylvania state income tax withheld.

Unemployment

Pennsylvania Unemployment Compensation (UC) is a state fund with contribution rates that vary every year.

If you are a new employer paying wages for the first time, you are subject to the Office of Unemployment Compensation's "new employer rate". The base rate is 3.5% for most industries and 9.7% for construction from 2023 onward.

The UC surcharge adjustment increases or decreases this base rate, which is +9.2% for 2023 onward. The base rate is multiplied by the surface adjustment, making the new employer rate 3.822% for most industries and 10.5924% for construction employers.

Additionally, UC has a standard contribution rate for employers based on their employment history once they are no longer considered new employers. This contribution rate also varies depending on the reserve account balance, which can go negative with too many claimants after layoffs. Negative balances result in higher contribution rates.

Local Taxes

Some cities and counties in Pennsylvania have a local earned income tax (EIT). Philadelphia, Allegheny County, and other counties and municipalities have their own income tax that can be searched by address through the state's database. Employees need to complete a Residency Certification Form before starting work and report any address changes, to confirm that they are having local taxes withheld at the correct rate and going to the tax collector where they live.

There are also jurisdictions in Pennsylvania that levy a local services tax (LST) for doing business, namely Pittsburgh, Scranton, and Harrisburg. If an employee is subject to LST, employers usually withhold it though the maximum is about $52 per year. Some regions exempt low-income employees.

Compliance Requirements

New businesses need an Employer Identification Number (EIN) from the IRS before registering with the Pennsylvania Department of Revenue. You have 20 days from the new employee's hiring date to report it to CareerLink, a state office that tracks residents' employment history to cross-match child support cases and UC overpayments.

The filing deadlines for payroll taxes vary depending on how much is withheld every quarter. Employers who withhold $300 or less per quarter only need to file their payroll tax returns quarterly, by the last day of April, July, October, and January, respectively.

Once you have more than $300 in quarterly withholding but less than $900, payroll taxes must be remitted on the 15th of every month.

The obligation becomes semi-monthly if the withholding is at least $1,000 but under $5,000. Payroll taxes are due within three business days of when the semi-monthly period ends.

Employers who withhold $5,000 or more per quarter must file their PA payroll taxes semi-weekly: if employees are paid on Wednesday, Thursday, or Friday, the taxes are due the following Wednesday. If they get paid over the weekend or on Monday or Tuesday, the deadline is the following Friday.

Calculating PA Payroll Taxes

PA payroll tax rates don't change frequently, but they can be difficult to calculate if you are unsure which category your business belongs to. Generally, you would take the current statutory rate and multiply the employee's pay per pay period by that amount.

For example, an employee whose gross pay is $2,500 biweekly would have 3.07% of their pay withheld in state income tax, or $76.75. Assuming you are a new employer not in the construction industry, UC contributions would be 3.822%, or $95.55, which is not withheld from the employee's paycheck. Any additional local taxes would depend on the employee's residence.

Solutions from Exact Payroll

Exact Payroll is a Pennsylvania-based payroll provider focusing on UKG payroll technologies for our clients. As Pennsylvania business owners, we understand the challenges of PA payroll tax calculations, compliance, and other requirements of Pennsylvania employers. Our team works with various clients ranging from banking to the restaurant industry. We offer a suite of payroll and HR management tools with customized interfaces for your unique payroll processing needs. 

Pennsylvania payroll taxes include state income tax, unemployment with variable rates, and local income taxes that vary based on residence. As you shift from a new employer to an established one, several deadlines and reporting requirements change. By partnering with Exact Payroll, you will have peace of mind that your PA payroll tax compliance is up to date and correctly processed. Schedule a call today with one of our Pennsylvania payroll tax experts.