Payroll Preparation Tax
What is the Payroll Preparation Tax?
Communities that have been classified as financially distressed have the option to eliminate the Business Privilege Tax and enact the Payroll Preparation Tax. This is a tax levied on an employer’s total payroll amounts, a self-employed individual’s earnings, and/or rental income generated as a result of conducting business activity within the municipality.
What areas have enacted this tax?
The Cities of Hazleton and Scranton have enacted this tax beginning with the 2022 Tax year. The Scranton City School District has opted to retain the Business Privilege Tax, therefore only the City’s portion has been replaced by the Payroll Preparation Tax.
Who must file?
Any person conducting business activity within the municipality that has enacted the tax, except for a governmental entity. A person is deemed to be conducting business within the municipality if one engages, hires, employs or contracts with one or more individuals as employees or is self-employed. A person shall be deemed to be engaged in business who, in return for rental income, rents, leases or hires real or personal property to others. A person shall not be deemed to be engaged in business solely by reason of the receipt of income from passive investments for which no services were rendered.
Are Charitable Organizations Required to file?
Entities classified as 501(c)(3) Purely Public Charitable Organizations shall calculate the tax that would otherwise be attributable to the municipality and file a return, but shall only pay the tax on the portion of its payroll attributable to business activity for which a tax may be imposed pursuant to Section 511 of the Internal Revenue Code. If the charity has purchased or is operating branches, affiliates, subsidiaries or other business entities that do not independently meet the standards of the “Institutions of Purely Public Charity Act”, the tax shall be paid on the tax attributable for to such for-profit branches, affiliates or subsidiaries, whether or not the employees are leased or placed under the auspices of the charity’s umbrella or parent organization. A current copy of the Federal 990 tax return and Non-Profit Charter may be requested to support your claim of a Purely Public Charity.
What is taxable?
If you are an employer operating a business in the municipality the business payroll consisting of the compensation earned by employees; including salaries, wages, commissions, bonuses, and other compensation; is taxable for the Payroll Preparation Tax. The tax is on gross payroll of the Employer. The Employers’ portions of federal and state payroll taxes, health insurance premiums, retirement plan contributions, etc., are not part of taxable gross payroll.
If you are self-employed and/or receiving income from rental property located within the municipality the Net Income received is taxable. The Net Income received by a self-employed individual from their business for services performed in the municipality during the reporting period is taxable for the Payroll Preparation Tax, as well. A partner or a self-employed individual is taxed only on the draws and distributions received by him or her during the year from his or her business. Any draws and distributions that exceed the net income of the partnership or sole proprietorship for the calendar year are not subject to tax. In calculating net income from the business, partners and sole proprietors are not allowed to deduct the following items: IRA, pension, or Section 401(k) contributions, or Section 125 benefits, or health insurance premiums allocable to that partner or to that self-employed person. Moreover, special federal tax deductions that are not allowed for Pennsylvania personal income tax purposes are not allowed for the Payroll Preparation Tax.
How to get a form?
How to complete the return?
Line 1 Wages from Quarterly Payroll – enter the taxable payroll amount per the above guidelines.
Line 2 Rental/Self-Employment Income – enter the taxable rental and/or self-employment income per the above guidelines.
Line 3 Total Taxable Income – add the figures from lines 1 & 2 and enter the total taxable income.
Line 4 Tax Rate – multiply the provided tax rate by the total taxable income from line 3. Enter this figure here for your total tax due.
Line 5 Interest – multiply the provided interest rate by the tax due from line 4. Multiply this figure by the number of years or portion thereof that the filing is late. Enter this figure here for your total interest due.
Line 6 Penalty – multiply the provided penalty rate by the tax due from line 4. Multiply this figure by the number of months that the filing is late. Enter this figure here for your total interest due.
Line 7 Total Amount Due – Add the figures from lines 4, 5 and 6 to get your total amount due. Enter this figure here.
When are the returns due?
|Quarter||Months||Due On or Before:|
|1st Quarter||January, February, March||May 31st|
|2nd Quarter||April, May, June||August 31st|
|3rd Quarter||July, August, September||November 30th|
|4th Quarter||October, November, December||February 28, 2023|
What if I don’t file and/or pay the Payroll Preparation Tax to which I am subject?
A fine and/or imprisonment, or both can be imposed upon anyone neglecting or refusing to file and pay the tax due.
Where do I file and pay the tax due?
Make checks payable to: HAB-PPT (short for: H A Berkheimer-Payroll Preparation Tax)
PPT Quarterly Returns
PO BOX 20087
Lehigh Valley, PA 18002-0087