Pennsylvania Act 32 changes

Alerts and notices

For payroll compliance (annually licensed)

Pennsylvania localities require earned-income tax to be withheld from employees' payroll checks for whichever has the higher rate -the resident location or the nonresident work location. These taxes must be paid to the employer's work location tax collector. Previously, the requirement was to withhold the resident earned-income tax only if the business address is the resident location. Otherwise the business earned-income tax was withheld at the nonresident rate.

To support these requirements for Pennsylvania Act 32:

  • The earned-income tax is combined into a single tax item (rather than the two existing tax items used for 2011 and prior years). For example, Pennsylvania Bethel Park, Borough of LST Bethel Park S D and Pennsylvania Bethel Park, Borough of EIT Bethel Park SD MU are combined into Pennsylvania Bethel Park, Borough of EIT.

    PA Act 32 1

  • The higher of the two earned-income taxes are withheld on the employees' payroll checks.
  • The standard quarterly and annual earned income tax forms are available for all twenty-one tax agents to file.
  • Because all taxes for the earned-income tax are paid to the work location tax collector, that tax agent must be selected for each combined earned-income tax item in the Taxes section of the Payroll Taxes tab of the Setup > Clients screen.

    PA Act 32 2

  • Selecting the tax agent in the Payroll Taxes tab determines the payroll tax forms that display for the employer and the tax items that display on the forms.
  • To select a default EIT tax agent, choose Setup > Clients, click the Payroll Taxes tab, and click the Local button to open the Local dialog. The agent you select in the Default EIT Tax Agent drop-down list will be the default agent used for any combined earned-income tax items added in the future.

    PA Act 32 3

  • You can add a PSD code variable to any report by customizing the report in the Report Designer. Because PSD codes pertains only to Pennsylvania, we recommend that you create customized reports that contain the variable to use specifically for your Pennsylvania clients.
  • The application displays the PA PSD code (known as the TCD code) entered in this field in Box 20 on all copies of the client's W-2 forms. The PSD code field is blank by default, and the application displays 99 in Box 20 of the forms until the correct code is entered into this field. The TCD code should represent the Tax Collection District for where the employer remitted the taxes.

For further information regarding Pennsylvania ACT 32, visit https://dced.pa.gov/.

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