Article IV: COLLECTION AT SOURCE
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Section 4.01 Registration of Employers.
A. Every person within a taxing jurisdiction who employs one or more persons, other than domestic, on a salary, wage, commission or other compensation basis shall, within ten (10) days after becoming an employer, register with the Earned Income Tax Administrator his name and address and such other information as the Administrator may require.
B. Employers required to register and withhold include all employers who are residents of a taxing jurisdiction, and all other employers who maintain a place of business therein. In the districts which tax both residents and non-residents, every employer must register, as in Section (A) above, which refers to residents only.
COMMENT: Section 4.01(A) flows from 53 P.S. Section 6913(IV)(a).
Section 4.02 Employers Required to Withhold.
A. Every person within a taxing jurisdiction who employs one or more persons, other than domestics, on a salary, wage, commission or other compensation basis shall deduct at the time of payment thereof, that tax imposed by the Resolution or Ordinance upon residents of a taxing jurisdiction regardless of where their services where rendered.
B. An employer who is engaged in a business activity within and outside of a taxing jurisdiction shall withhold the tax from resident employees who work for such employers, irrespective of the location of such business activity, even though the payroll records and place of payment are not in a taxing jurisdiction.
C. An employer who employs one or more non-resident employees in a taxing jurisdiction which levies a tax on non-residents, other than domestics, on a salary, wage, commission or other compensation basis, the tax imposed upon non-residents shall be withheld by the employer at time of payment thereof. Said non-resident employee shall be said to be employed within a taxing jurisdiction which levies an earned income tax on non-residents if he reports to and/or receives work assignments from an employer's office located within said jurisdiction.
COMMENT: Section 4.02 flows from 53 P.S. Section 6913(IV)(b). Section 4.02(A) mandates that an employer within a taxing jurisdiction imposing an earned income tax, withhold said tax from any resident employees. Section (B) requires an employer located within two taxing jurisdictions, one which imposes an earned income tax, and one which does not, to withhold from an employee who is a resident in the jurisdiction which does impose said tax. Section (C) requires an employer located in a municipality which does impose a resident/nonresident earned income tax to withhold said tax from nonresident employees and requires the tax collector to look to whether said nonresident employee reports to an employer's location within such a taxing jurisdiction.
Section 4.03. Withholding by Non-Resident Employers.
Non-resident employers engaged in a business, trade, profession or other activity located outside a taxing jurisdiction are not required to withhold the tax. Any such employer may, however, voluntarily agree with his employee to withhold the tax and transmit it and the appropriate forms to the Earned Income Tax Administrator.
Section 4.04. Drawing Accounts and Allowances for Expenses.
A. If the amount received by an employee as a drawing account exceeds the salaries or commissions earned, the tax shall be withheld on the amount received. If the employee subsequently repays any amount not in fact earned, the tax shall be adjusted accordingly.
B. An employer required to withhold the tax on compensation paid to an employee may, in determining the amount on which the tax is to be withheld:
1. Ignore any amount allowed and paid by the employer to the employee for expenses necessarily and actually incurred by the employee in the actual performance of his service, or;
2. Deduct any amount necessarily incurred and expended by the employee in the actual performance of his services, for which expense he is not to be or has not been reimbursed by the employer; provided, that in either case, such expense must be recognized by the Federal and State authorities for payroll tax purposes and the Federal authorities for income tax purposes, and the employee shall furnish the employer, before said deduction is made, an itemized statement of the expenses claimed.
COMMENT: Sections (A) and (B) make the distinction, for employer withholding purposes, between actual earned income and expenses which are incurred by the employee and reimbursement by the employer. See Section 3.11(N) above for list of allowed deductions/expenditures incurred by employees.
Section 4.05 Withholding by Employers of Nurses, Musicians, Entertainers, Clergymen and Domestics.
A. Hospital Nurses -- Nurses in the permanent or part-time employ of hospitals, clinics, schools and institutions shall have their earned income tax withheld by their employers.
B. Musicians
1. For purposes of this provision, the following terms and phrases shall be defined as follows:
a. Contractor -- The term "Contractor" means that individual musician through whom the purchaser of music and the musician negotiate the contract of service and the performance thereof. The contractor may or may not perform actual musical service under a contract which he has negotiated.
b. Purchaser of Music -- The person, partnership, organization or association for whom or which the musical services are to be performed or furnished, and who exercises an employer's control over the conduct of the musicians.
2. When a contract for the purchase of music has been executed between a purchaser and a contractor, then the musician shall be deemed to be the employee of the purchaser. The purchaser shall be the person responsible for withholding the tax from the wages paid to musicians.
3. Name Bands and Orchestras -- A name band or orchestra is one which is identified or known by a name and which holds itself out to the public as a permanent organization, and in addition has either (a) a fixed personnel, or (b) the individual member musician has contracted for his services with the leader or owner of the band at fixed salary, by term or by individual engagement, and over whom the purchaser has no direct control. The leader or owner of the band shall be responsible for withholding the tax from the wages paid to members of such name bands.
C. Entertainers Other than Musicians.
1. The owner of a club, cafe, bar, theater or of any place which furnishes entertainment to the public or to its patrons, shall be deemed the person liable as an employer of entertainers. Such employer must deduct the tax from the compensation paid to the entertainer.
2. Promoters of boxing exhibitions and other sporting events are required to withhold the tax from the compensation paid to the contestants engaged in the particular sporting event.
D. Lecturers and Speakers. The fees received by resident lecturers and speakers are subject to the earned income tax; the responsibility for the payment of the tax lies with the lecturer or speaker.
E. Clergymen. The compensation received by ministers, rabbis and clergymen is taxable. This includes offerings and fees received for performing marriages, baptisms, funerals and other religious ceremonies; it DOES NOT include offerings made to the religious institution.
A housing allowance paid to clergy is not taxable income if:
1. Said clergyman uses the allowance in the year received to provide a home and/or pay utilities for a home which is provided; and
2. The church, congregation, and/or parish employing said clergy has officially and specifically designated that portion of his salary to be a housing allowance.
The value of a rented home provided by the church is not taxable income to the clergy. A housing allowance used by the clergyman to purchase a home may be excluded from taxable income to the extent it is applied to the down payment, mortgage payment, and/or interest, taxes, utilities, costs of repair for the home.
F. Domestics. The compensation received by domestics is taxable income; HOWEVER, it is not subject to collection at source requirements. The individual employed or working as a domestic is responsible for the payment of the tax.
COMMENT: In the field of professional music there has arisen the practice of engaging musicians exclusively through a so-called "Contractor." The practice, which arose by prescription of the American Federation of Musicians and of local union regulations, enables the purchaser of music to deal with only one of the number of musicians required for a particular occasion. An entertainer other than a musician is usually engaged by a purchaser through a booking agent. The booking agent, once the contract of employment has been executed, does not exercise an employer's control over the entertainer.
Under Section 4.02(A) of these Rules and Regulations and Section 13, Article IV, subsections (b) and (c) of the LTEA, 53 P.S § 6913(b), (c), domestic servants are not subject to collection at source provisions.
Section 4.06 Liability of Employer.
A. When an employer required to withhold tax does so withhold, the amount withheld shall constitute in the hands of such employer a trust fund held for the account of the taxing jurisdiction as beneficial owner thereof and the employee from whose compensation such tax was withheld shall be deemed to have paid such tax. The provisions of this paragraph are not applicable in the case of an employer who is not required to withhold tax.
B. The failure of any employer to withhold the tax shall not relieve the employee from payment of such tax or from complying with the requirements relating to the filing of a final return.
C. Every employer who willfully or negligently fails or omits to make the deductions required by Section 4.02 above shall be liable for payment of the taxes which he was required to withhold to the extent that such taxes have not been recovered from the employee.
D. Any employer who for two of the preceding four quarterly periods has failed to deduct the proper tax, or any part thereof, of has failed to pay over the proper amount of tax to the taxing authority, may be required by the officer to file his return and pay the tax monthly. In such cases, payments of tax shall be made to the officer on or before the last day of the month succeeding the month for which the tax was withheld.
COMMENT: Section 4.06(A) merely reiterates the fiduciary relationship between employer and employee to the extent that the employer has withheld the tax due and owing by his employee, creating a trust fund in the hands of the employer until such tax money is turned over to the tax collector. Where an employer has negligently or willfully neglected to withhold tax monies from his employee, said employee may be held liable for the payment of said tax; this flows from 53 P.S. § 6913(IV)(f). However, the employer may also be liable for any portion or all of the tax money not withheld on behalf of an employee, to the extent that same cannot be collected from the employee directly, see, 53 P.S. § 6913(IV)(e). Section (D) springs from 53 P.S. § 6913(IV)(c).
Section 4.07 Returns of Employers and Payment of Withheld Tax.
A. Every person required to withhold tax shall on or before April 30, July 31, October 31 and January 31, file a return on a form prescribed by the Earned Income Tax Administrator setting forth the taxes withheld, and pay to the Earned Income Tax Administrator the amount of tax withheld for the preceding quarterly periods ending March 31, June 30, September 30 and December 31.
B. On or before February 28 following the close of the calendar year, every such employer shall file with the Earned Income Tax Administrator an annual return in respect of each employee who earned any taxable salary, wages, commissions or other compensation, setting forth the employee's name, political sub-division, and social security number, the amount of such taxable compensation, the amount of tax deducted and paid to Earned Income Tax Administrator there from, and such other information as the Tax Bureau may require.
C. On or before February 28 following the close of each succeeding calendar year, every employer shall furnish two copies of the individual return provided for by paragraph B above to the employee with respect to whom it is filed. These copies must also be furnished by employer to employee at end of employment listing the district in which the individual was a resident.
D. Every employer who discontinues business prior to the completion of the fiscal year shall, within thirty (30) days after discontinuance of business, file the returns required by this section and transmit to the Earned Income Tax Administrator any tax remaining due. Where discontinuance of business is due to the death of the employer, his personal representative or, in the absence of a personal representative, his heirs as designated by the Pennsylvania Interstate Act of 1947, as amended or as hereafter amended or supplemented, shall within sixty (60) days after the death of the employer file his final return and pay the tax due.
COMMENT: Section (A) comes directly from 53 P.S. Section 6913(IV)(b). Section (B) comes from 53 P.S. Section 6913(IV)(c)(1); Section (C) flows from 53 P.S. Section 6913(IV)(c)(2), in part. Section (D), in part, comes from 53 P.S. Section 6913(IV)(d).