Pennsylvania Act 32: What It Entails

Pennsylvania’s local tax system is one of the most complicated in the U.S. For many years, over 500 local tax collectors existed purely to secure earned income taxes (EIT). But that proved too costly and difficult to manage.

In 2008 Pennsylvania passed Act 32, with the effects taking hold in January 2012. Act 32 streamlined the EIT system, greatly reducing the number of tax collectors. Act 32 also renumbered local taxes based on political subdivision, or PSD codes.

PSD codes are six-digit numbers that help employers and tax collectors remit the correct amount of EIT to the appropriate taxing jurisdiction.  The first two digits make up the 'Tax Collection District.' The first four combined represent the 'School District Code.' The entire code represents the city, borough, or township of the employee’s home address.

Under Act 32, EIT consists of a percentage of earnings based on an employee’s resident rate, and non-resident rate. The Act requires employers to withhold the higher rate of those two and send that to the appropriate tax collector. Should the rates be the same, the non-resident rate, or work location rate, is used. Businesses with multiple locations across Pennsylvania can send their taxes to the tax collector in the district where their company is headquartered;

At Symmetry Software, our local tax identifier Payroll Point implements the provisions of Act 32. Payroll Point delivers a detailed list of taxes based on an employee’s home and work addresses. Entering Pennsylvania addresses into Payroll Point lists the breakdown of a PSD code, along with the correct EIT rate (the system knows to display the higher rate between the home and work addresses). Payroll Point also shows which rate and what office to use when remitting to a tax collector -- which can be helpful for companies with locations in multiple areas of the state. Payroll Point can store codes and rates too to aid in future dealings.

Act 32 also improves the accountability of the tax collector, through various means such as:

• The tax collector must keep detailed records of every dollar received and distributed.
• The tax collector must submit monthly reports.
• The tax collection office will be provided with new tools to pursue employers who do not comply with Act 32.

If you are struggling to comply with Act 32, test out Payroll Point to see how quickly and accurately you can get the correct rates.