What is Act 32?
Act 32 is a law that streamlines and standardizes the local earned income tax system. Act 32 reduces Pennsylvania’s number of Earned Income Tax (EIT) collectors from 560 to 21. The appointment of collection responsibility falls on countywide committees made up of representatives from local municipalities and school districts. The committees established tax collection districts and elected tax officers to collect the EIT. Act 32 requires uniform withholding of earned income taxes and remittance to a single local collector or Tax Officer. The act applies to the earned income taxes levied and collected after December 31, 2011. Appointed tax officers start collecting the EIT on January 1, 2012 unless the tax collection district has been approved for early implementation.
Employer Act 32 Requirements
- Registration Local Earned Income Tax Withholding
- Residency Certification Form
- Employer Quarterly Return
- W-2 Annual Reconciliation
Registering Your Business
Any employer with a place of business within Pennsylvania who employs one or more persons (other than household employees) for compensation is required to register within 15 days of becoming an employer with the appointed tax collector.
Changes in Withholding Responsibility
- All employers, located in Pennsylvania, must withhold the non-resident tax rate for employees living outside of Pennsylvania, if one exists. For employees living within Pennsylvania, the employer is required to withhold at the higher rate of either the employee’s resident rate or the non-resident rate in which the employer is located. Employers located in political subdivisions who do not have a tax in place will be required to withhold taxes for all employees who are residents of Pennsylvania who have a resident tax for the locality in which they live, and remit them to the Tax Officer.
- Each employer shall require each employee to complete a Certificate of Residency form. This form shall provide information to help identify the political subdivisions where the employee lives and works. This form must be updated any time an employee has a change of address. The completed form is required to be retained by the employer and is subject to audit by the tax officer. Residency Certification Form
- The withholding tax rate is determined by the employee’s resident tax rate or the employer jurisdiction’s non-resident tax rate, whichever is greater (rates need to be verified twice per year as of January 1st and July 1st). For withholding tax rate information, click here.
- Employers are required to remit taxes withheld within 30 days of the end of the quarter to the tax officer for the jurisdiction where their workplace is located.
- If an employer has multiple locations in more than one tax collection district, the employer may file the return and pay the total amount of earned income taxes deducted from employees in all work locations to the tax officer of the tax collection district in which they are headquartered.
- If a business does not have a headquarters in Pennsylvania and has multiple locations in several tax collection districts throughout the state, that business can choose to file with one tax officer in one of their several locations.
- If an employer chooses to remit for multiple locations with one tax officer, the return and the earned income taxes deducted shall be filed and paid electronically on a monthly basis, due 30 days following the last day of each month.
- The employer must file a notice of intention to file combined returns and make combined payments with the tax officer for each place of employment at least one month before filing its first combined return or making its first combined payment.
- Your Notice of Intention must contain the following information:
- Your company name
- A contact person with phone number
- The TCD you will be filing with
- A list of all jurisdictions included in your combined filing along with any Berkheimer Account Numbers, if applicable
Please mail all notices of intention for Berkheimer to HAB-EIT, PO Box 25132, Lehigh Valley, PA 18002.
- The Department of Community and Economic Development (DCED) is required to develop uniform forms and returns that must be used by all employers after January 1, 2012.
- Political subdivision (PSD) codes have been designed to identify the municipalities and school districts for each tax collection district and aid in ensuring that employee withholdings are remitted and distributed to the proper taxing authority. A list of all PSD codes can be found on the DCED’s website. Act 32 requires that employers utilize these codes on all withholding reports as of January 1, 2012.
- Employers will be required to file an individual withholding statement or integrate the information listed below onto Form W-2 for any person employed during the entire or any part of the prior tax year. Form W-2 or the individual withholding statement must contain:
- employee’s name
- social security number
- amount of compensation paid to the employee
- amount of income tax withheld
- amount of income tax paid to the tax officer
- 6 digit code identifying the Political Subdivision, as prescribed by the department, representing where the employee earned the wages reported. If you are filing as a “statewide” filer you will also be required to affix the 2 digit TCD code to where the taxes were submitted to. (xxxxxx-xx).
- and any other information prescribed by the department
- Every employer must also file an annual W-2 Reconciliation form (W-2R) by February 28 of the succeeding year.
Discontinuance of Business
An employer who discontinues business prior to December 31 of the current year must, within 30 days after the discontinuance of business, file returns and withholding statements required and pay the tax due.
Additional information regarding Act 32 can be found at:
Act 32 – Terminology
Effective January 1, 2012 to consolidate the collection of Earned Income Tax (EIT) on a countywide basis.
TCD / Tax Collection District
Mostly the same as a county but there are some exceptions. Allegheny county will be divided into 4 “sections” and have 4 TCD’s. If a school district crosses county lines it falls into the TCD that has the greater population.
TCC / Tax Collection Committee
Delegates from municipalities and school districts joined together to control and oversee the tax collection for the tax collection district.
TO / Tax officer
The tax collector for the Tax Collection District.
DCED / Department of Community and Economic Development
The government entity charged with enforcing Act 32 as well as publish its rules, regulations, and forms for use.
PSD code / Political subdivision
This is the required number the DCED has assigned to identify the municipalities and school districts for each tax collection district.
Is an employer that is filing for all of its locations in the Commonwealth via a single tax administrator. Employers who do so are required to file electronically and monthly with that collector.