Pennsylvania Local Tax Reform -- Act 32

What - When - Why?

On July 2, 2008 the Pennsylvania legislature enacted an amendment of the Local Tax Enabling Act, Act 511 of 1965

Mandatory compliance is effective January 1, 2012.

With the goal of consolidating and simplifying the collection of Local Earned Income taxes on a

countywide basis.

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Current Local Tax Collection System

Fragmented - Unstructured 560 collectors collecting for 2,500+ localities

Related municipalities and school districts remitting to separate collectors

Manual payment processing

Quarterly/Annual Returns not standard and filed manually

Only addresses the work site tax

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Your Workforce. In Focus.

Standardization of forms and definitions

Consolidation of the Tax Collectors

560 reduced to about 66

Districts can still set their EIT rates

Streamlined Improvements with Act 32

DCED

•Pennsylvania’s Department of Community and Economic Development – the overseeing body of Act 32

TCD

•Tax Collection District – contains municipalities and school districts within a defined area

PSD

•Political Subdivision – the municipalities and school districts

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PA Act 32 - New Terms

PA Act 32 Improvements

STREAMLINED: 21 Collectors with only 69 Tax Collection Districts (TCDs)

STANDARDIZED: Political Subdivision (PSD) Codes-6 digits

» First 2 digits represent the TCD» Second 2 digits represent the School District » Third/final 2 digits represent the Municipality

STREAMLINED: Municipalities School Districts will share TCD

EFFICIENCY: Payment processing will be electronic for faster and more accurate processing

Quarterlies and W2s filed electronically

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PA Act 32 – Employer Requirements

Registration

Register with TCD where business is located

Paper vs. Online registration

Multiple worksite employers• Can consolidate PA sites to remit/file to one TCD.• Must file monthly and electronically• Must send notification to all other affected TCD’s alerting to

which TCD you are remitting/filing.

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PA Act 32 -Employer Requirements

Employee InformationEmployees must complete Local Residency

Form

Survey all active employees Provide form to every new hire and employees who

change address Employer must keep original on file, do not send to

collector

Withholding for all employees is MANDATORY

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PA Act 32 – Employer Requirements

Employee Information

State provided spreadsheet to assist employers to help employees to determine PSD codes

If an employee cannot determine their PSD code, recommendation is to use the work location non-

resident PSD code to withhold the minimum 1%

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Step 1: Employer

Registration

Determine where business is located or where you are going to report

Register with the TCD where your

business is located

Step 2: Gather Employee

Information

Distribute Residency Forms to all employees

Assist in determining PSD

codes

Step 3: EE Withholding

Be proactive and set up employees now with current

tax codes

Sentric will convert old codes to PSD codes effective

1/1/2012

Your Workforce. In Focus.

Employer Requirements Summary

Tax Withheld from Employees

Money is remitted to work location

TCD

Work location TCD collector sends to

Resident TCD

TCD collector forwards money to municipality PSD

Employee files annual return with

Resident TCD

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Act 32 Payment Cycle

PA Act 32 - Compliance with Sentric

All PSD codes are currently available in our system

Developed a program that converts old PA-xxxx codes to PSD codes on all employees effective 01/01/2012.

System logic will compare work location PSD to resident location PSD to withhold higher rate as required by Act 32

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Sentric’s PA Act 32 Services

TaxCheck/TaxNotice Services

AutoTax Services

Quarterly and W-2 Processing

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Your Workforce. In Focus.

Is the LST (Local Services Tax) included in Act 32?

No. The Local Services Tax

falls under its own Act.

Who will send the residency certification form to my employees?

The employer is responsible for surveying, collecting and keeping the employees’ PSD certification information.

PA Act 32 - FAQs

Your Workforce. In Focus.

When are we required to implement Act 32?

Act 32 is effective 1/1/2012.

Am I required to notify my employees of the Act 32 requirements?

No, notification to employees is not required.

PA Act 32 - FAQs

Your Workforce. In Focus.

What if an employer has out-of-state employees working in PA?

The employer must withhold at the work location’s established non-resident rate

PA Act 32 - FAQs

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What if I refuse to comply with Act 32’s mandated requirements?

Employers can be fined up to $25,000 and can be sentenced to up to 2 years in jail.

PA Act 32 - FAQs

Reference Documents & Links

PSD Codes

Interactive TCD Map

TCD and Collector Listing

Residency Certification Form

Municipal Statistics Tax Report – Address Lookup

American FactFinder – US Census Bureau

DCED Act 32 Information

DCED LST Related Information

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Questions ?

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Disclaimer: These slides are for educational purposes only. They are not intended to be accounting advice.