What Payroll Taxes Do Employers Pay in Pennsylvania?

Before you hire your first employees, here are the employer obligations you should be aware of when operating in Pennsylvania. Failure to file payroll tax returns on time and nonpayment of payroll taxes can result in significant fines of 5% of the overdue taxes every month, with a maximum penalty of 50% of the unpaid balance.

Types of Payroll Taxes in Pennsylvania

State Income Tax

Pennsylvania has a flat-rate state income tax of 3.07% on personal income. Similarly to federal income taxes, Pennsylvania employers must withhold state income tax from employees' paychecks at this rate. Unlike federal taxes, there is no tax table with annual updates for Pennsylvania in light of the flat rate. Employers do not pay this tax but manage the withholding.

However, employers close to other state borders can face multistate tax challenges when it comes to correctly withholding state income tax from their employee's paychecks. It must be withheld from both Pennsylvania residents and nonresidents unless they live in one of six states that is part of the state reciprocity agreement:

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

Unfortunately, despite their proximity to Pennsylvania, New York and Delaware residents still need to have 3.07% state income tax withheld if they work in the state. Employees who live in one of the above six states must furnish Form REV-419.

Unemployment

The primary PA employer payroll tax responsibilities are contributions to the Pennsylvania Unemployment Compensation (UC). The state unemployment fund has multiple contribution rates that vary every year.

New employers paying wages for the first time are subject to the "new employer rate". The base rate for new employers is 3.5% for most industries and 9.7% for construction for 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.

When you are no longer a new employer, UC charges a standard contribution rate based on how much is in your reserve account. The lower your balance, the higher your contribution rate. If you lay off too many workers and have a negative UC balance, your contribution rate is far higher than if you had a positive balance.

Local Taxes

Local earned income tax (EIT) and local services tax (LST) are levied on employees, but most employers withhold these taxes from employees' paychecks. Philadelphia, Allegheny County, and other municipalities have their own local income tax and certain regions like Pittsburgh, Scranton, and Harrisburg subject residents to LST. Some jurisdictions allow employees to pay the tax collector directly instead of requiring withholding, and low-income residents are sometimes exempted.

The most certain way to find out if an employee needs EIT and LST withheld is to complete a Residency Certification Form before beginning work. The employee's primary residence is run through the state's tax database to confirm the jurisdiction and rate. Employees should also report relocations to you right away to confirm they are still using the correct local rates.

Employer Responsibilities

All Pennsylvania employers need an Employer Identification Number (EIN) from the IRS prior to registering with the Pennsylvania Department of Revenue. All new hires must be reported to CareerLink within 20 days, 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 Payroll Taxes

Pennsylvania payroll tax rates for employers vary annually. The first step is determining which UC contribution rate you are subject to and then applying it to all outgoing payments.

For instance, if you are a new employer not in construction, your 2024 contribution rate is 3.822%. If your employee's weekly gross pay is $1,000, your UC contribution is $38.22. This is separate from the standard federal payroll taxes like FICA and 6% federal unemployment tax.

All other payroll deductions, like state income tax, are paid by the employee but managed by the employer.

Avoiding Common Mistakes

• If you are a new employer, you need to use the new employer rates for UC payments. The date you are no longer considered a new employer is arbitrary because it is based on your history of paying wages, rather than how long you've been in business. If you're in doubt as to the correct UC contribution rate, contact the Revenue Department.
• All new hires should fill out a Residency Certification Form prior to starting work.
• Don't forget to report new hires to CareerLink within 20 days of starting work.
• Remind employees to report whether they relocate, even if it's within the state.
• Pennsylvania income tax still has to be withheld on nonresident employees' pay unless they live in one of the six states in the reciprocity agreement.

Exact Payroll Solutions

Pennsylvania payroll taxes can be tricky to navigate. Exact Payroll has the tools and experts you need to ensure your business is compliant with the correct payroll tax rates and timelines. We provide you with payroll management tools that are intuitive to use and specifically designed for small and mid size Pennsylvania employers who face these challenges, and can tailor your solution to your industry.

Figuring out how to pay payroll taxes in Pennsylvania doesn't have to be confusing anymore. The primary tax employers are responsible for is the correct unemployment contribution rate for the state fund. Local income taxes are employees' responsibility, but you must withhold these taxes from their paychecks correctly. Exact Payroll can eliminate the headaches in understanding Pennsylvania payroll taxes, and provide a simple user experience for you and your employees to ensure their taxes are correctly paid.

Navigate Pennsylvania payroll taxes effortlessly with Exact Payroll. Contact us today!