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Employers must withhold Earned Income Tax (EIT) from the compensation of each employee at the greater of the employee's resident or non-resident tax rate.
Local Services Tax (LST) is levied by municipalities and/or school districts on individuals who are employed or making net profits within their taxing jurisdiction.
Mercantile/Business Privilege Tax (MBP) is a tax on the gross receipts of a business operating within a municipality or school district levying the tax.
Visit dced.pa.gov for all local income tax requirements for employers.
Employers are required to file an annual return, including individual withholding statements or Federal Form W-2s on or before February 28th of the succeeding year. Employers are also required to file reports of employee wages and local tax withholding detail on a quarterly basis.
Failure to deduct or remit the proper amount of tax may be required by the tax officer to file returns and remit tax monthly.
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As an out-of-state employer, you are not required to complete a Residency Form or withhold Earned Income Tax for a PA resident employee. The PA resident employee will still be subject to the "Total Resident EIT Rate" based on their home municipality.
Employers who choose not to withhold must notify their PA resident employees that they must make quarterly estimated payments directly to the bureau.
As an employer, you must complete a Residency Certification Form for each employee. Employees who work out-of-state will be subject to the Non-Resident EIT Rate, as well as Local Services Tax (LST), based on your worksite municipality.
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