Pennsylvania Act 32: What Employers and Payroll Platforms Need to Know

Before Pennsylvania’s Act 32 took effect on January 1, 2012, local earned income tax in Pennsylvania was collected by more than 560 separate tax collectors across the commonwealth. Employers with employees in multiple Pennsylvania municipalities faced a patchwork of collection agencies, filing formats, and deadlines — each with its own quirks. Act 32 consolidated that chaos into 69 Tax Collection Districts (TCDs), each with a designated tax officer responsible for collecting EIT for all municipalities and school districts in that district.

For payroll platforms and tax compliance managers, Act 32 is both a simplification and a complication. It simplified the remittance side — fewer collectors, more uniform rules. But it introduced the dual PSD code requirement and the “higher-of” withholding rule, which together have become two of the most frequent sources of local tax error in Pennsylvania.

This guide covers what Act 32 requires, how the mechanics work, and what payroll platforms must automate to handle Pennsylvania correctly.

What Act 32 Actually Did

Act 32 made three fundamental changes to Pennsylvania’s local tax system:

1. Consolidated collection into 69 Tax Collection Districts. Each TCD covers a defined geographic area (usually a county, with some exceptions — Allegheny County has four TCDs). A single designated tax officer collects EIT for every municipality and school district in the TCD. Employers remit to the tax officer, not to individual municipalities.

2. Standardized withholding rules. Before Act 32, withholding rules varied by municipality. After Act 32, uniform rules apply — including the “higher-of” withholding rate for nonresidents working in PA.

3. Required employer registration and residency certification. Every Pennsylvania employer must register with the tax officer for their workplace TCD. Every employee must complete a Residency Certification Form that identifies the PSD codes for their residence and work location.

Philadelphia is notably exempt from Act 32. Philadelphia continues to administer its own wage tax through the Philadelphia Department of Revenue.

How PSD Codes Work Under Act 32

Every Pennsylvania employee has two Political Subdivision (PSD) codes:

• A resident PSD code for their home address
• A work location PSD code for where they perform work

Each PSD code is a six-digit identifier issued by the Pennsylvania Department of Community and Economic Development (DCED):

• The first two digits identify the Tax Collection District
• The middle two digits identify the school district
• The last two digits identify the specific municipality

Employers must collect both PSD codes from every Pennsylvania employee through the Residency Certification Form and must use them to determine the correct withholding amount and remit to the correct tax officer.

The “Higher-Of” Withholding Rule

Act 32 established a specific withholding rule for Pennsylvania employees: the employer must withhold EIT at the higher of the employee’s resident rate or the employee’s work location nonresident rate.

This sounds simple until you consider the scope. Pennsylvania has 2,500+ municipalities and nearly 500 school districts that can levy EIT. Each has its own resident rate and nonresident rate. The correct rate for any given employee depends on:

1. Their home PSD code’s resident EIT rate
2. Their work location PSD code’s nonresident EIT rate
3. A comparison of the two

If an employee lives in a 2% EIT municipality and works in a 1.5% nonresident rate municipality, the employer withholds at 2%. If an employee lives in a 1% EIT municipality and works in a 2% nonresident rate municipality, the employer withholds at 2%. The employer always withholds at the higher rate — and remits to the work location tax officer, who then allocates the share between the resident’s home TCD and the work location’s TCD.

What Employers Must Do Under Act 32

For every Pennsylvania employee, an Act 32-compliant employer must:

1. Collect a Residency Certification Form at hire. The form identifies the resident and work location PSD codes. It must be updated any time the employee changes home or work address.

2. Determine the correct withholding rate. Apply the “higher-of” rule to the resident rate and work location nonresident rate.

3. Withhold EIT from every paycheck. At the higher-of rate, on every pay period.

4. Remit to the work location tax officer. Quarterly (or monthly for larger employers) through electronic filing. Employers with multiple PA work locations can designate one tax officer to receive all remittances, but must notify each relevant TCD.

5. Retain documentation. Keep Residency Certification Forms on file for audit purposes.

6. Monitor rate changes twice yearly. Act 32 requires employers to verify rates on January 1 and July 1 of each year, when rate changes typically take effect.

What Act 32 Means for Payroll Platforms

For payroll platforms supporting Pennsylvania employers, Act 32 compliance has three operational challenges:

1. PSD code resolution from addresses. Every new Pennsylvania employee requires resident and work PSD codes. Manual lookup through the DCED website is possible but slow and error-prone at scale. Automated resolution via rooftop geocoding is the scalable approach.

2. Higher-of rate calculation on every paycheck. The calculation requires current rate data for both the resident and work location jurisdictions, plus the comparison logic. A platform relying on stale rate tables will systematically under-withhold when the higher rate side has changed.

3. Tax officer remittance to the correct TCD. Remitting to the wrong tax officer doesn’t just create administrative rework — it can expose the employer to penalties from the correct TCD for non-payment.

Handling all three automatically is why payroll platforms supporting multi-state clients with Pennsylvania employees typically embed a compliance-first tax engine. Symmetry Tax Engine handles Act 32 withholding natively, including the higher-of rule, and Symmetry Payroll Point resolves employee addresses to the correct PSD codes using rooftop-level geocoding against PA’s municipal boundary shapefiles.

The Act 32 Connection to Local Services Tax

Act 32 governs Pennsylvania’s local earned income tax — but it does not govern the Local Services Tax (LST), which is a separate local tax imposed by many PA municipalities at a flat rate (often $52 annually, prorated per pay period). LST has its own withholding rules and its own collection mechanism. Payroll platforms supporting Pennsylvania employers must handle both EIT (via Act 32) and LST separately.

For a complete handling of Pennsylvania, employ Symmetry’s infrastructure — Symmetry Tax Engine for calculation and Symmetry Payroll Point for jurisdiction resolution — handles Pennsylvania’s complexity natively. For a deeper look at Pennsylvania’s state and local tax structure, see our Pennsylvania tax guide or our article explaining PSD codes in detail.

Get a demo to see how Symmetry handles Act 32 compliance for your payroll platform.