What Is Pennsylvania Payroll Tax?
Pennsylvania payroll tax refers to the combination of state and local taxes that employers must withhold from employee wages or pay directly to state and local agencies. Pennsylvania state-level system is relatively simple a flat income tax rate and one unemployment tax but its local tax layer is one of the most complex in the country, with thousands of municipalities and school districts each setting their own local Earned Income Tax rate.
Pennsylvania payroll taxes are administered by three different bodies: the Pennsylvania Department of Revenue (state income tax withholding), the Pennsylvania Department of Labor & Industry (unemployment compensation), and local Tax Collection Districts (local Earned Income Tax and Local Services Tax), which are coordinated statewide under a framework known as Act 32.
Most Pennsylvania employers are responsible for the following payroll tax requirements:
- Unemployment Compensation (UC) both an employer and an employee contribution
- Pennsylvania Personal Income Tax withholding (a flat rate)
- Local Earned Income Tax (EIT) withholding
- Local Services Tax (LST) withholding, in many municipalities
Because Pennsylvania has no state disability insurance program, employers won't need to manage anything comparable to California SDI or New York DBL/PFL but the local tax layer more than makes up for that simplicity elsewhere.
Pennsylvania Payroll Taxes at a Glance
| Payroll Tax | Paid By | Purpose |
|---|---|---|
| Unemployment Compensation (UC) employer portion | Employer | Provides temporary income for eligible unemployed workers |
| Unemployment Compensation (UC) employee portion | Employee (withheld by employer) | Pennsylvania is one of the few states that also requires an employee UC contribution |
| Personal Income Tax (state) | Employee (withheld by employer) | Flat-rate state income tax withheld from employee wages |
| Local Earned Income Tax (EIT) | Employee (withheld by employer) | Local income tax, set individually by each municipality and school district |
| Local Services Tax (LST) | Employee (withheld by employer) | Small flat annual local tax for the privilege of working in a given municipality |
Understanding who pays each tax and that Pennsylvania local tax varies by exact work and home address helps employers avoid the most common Pennsylvania payroll mistake: treating it like a single flat-rate state.
Pennsylvania Employer Payroll Tax Responsibilities
Every employer with workers in Pennsylvania has payroll tax responsibilities beyond simply issuing paychecks. Depending on your business, you'll generally need to:
- Register your business with the Pennsylvania Department of Revenue and Department of Labor & Industry, typically through the combined PA-100 registration form.
- Collect a Residency Certification Form from every new hire to determine home and work PSD codes.
- Determine the correct local Earned Income Tax and Local Services Tax rates for each employee's home and work location.
- Withhold state income tax, local EIT, LST, and the employee's UC contribution.
- Pay employer UC contributions.
- File quarterly (and in some cases more frequent) withholding and UC returns.
- Remit local tax withholding to the correct local tax collector.
- Maintain payroll records for state and local compliance.
Many businesses use payroll software with built-in Pennsylvania PSD code and local tax rate lookups, since manually researching local rates for every employee is one of the most time-consuming parts of PA payroll.
Types of Pennsylvania Payroll Taxes
Pennsylvania employers typically deal with several payroll taxes across two levels of government. Understanding how each one works is essential for accurate payroll processing and compliance.
Unemployment Compensation (UC)
Unemployment Compensation is Pennsylvania version of state unemployment insurance, administered by the Department of Labor & Industry. Unlike most states, Pennsylvania requires contributions from both employers and employees.
Employer UC Contributions
- Calculated on a fixed annual wage base per employee
- New employers pay a flat introductory rate that differs for construction versus non-construction employers
- Established employers receive an experience-based rate, which also includes a solvency surcharge adjustment and an additional contributions tax layered on top of the base rate
- Rates are reviewed annually by the Department of Labor & Industry
Employee UC Contributions
- A small, fixed percentage of gross wages, withheld from every paycheck
- Unlike the employer's portion, there is no wage cap on the employee contribution it applies to all taxable wages, not just wages up to the annual wage base
- This is one of the more distinctive features of Pennsylvania payroll, since most other states place the entire unemployment tax burden on the employer
Both the employer and employee portions are reported and remitted together, quarterly, through Pennsylvania Unemployment Compensation Management System (UCMS).
Pennsylvania Personal Income Tax (PIT) Withholding
Pennsylvania imposes a flat-rate personal income tax on compensation there are no tax brackets, no standard deduction, and no personal exemption to calculate. Employers apply the same flat rate to every employee's wages regardless of income level, which makes the state-level withholding calculation considerably simpler than in states with graduated tax brackets.
Employers are responsible for:
- Withholding the flat state rate from every paycheck, including bonuses and other supplemental wages
- Reporting withholding to the Department of Revenue
- Depositing withheld taxes on a monthly, semi-weekly, or quarterly schedule depending on the amount withheld
- Filing quarterly withholding returns and an annual reconciliation
Employees who are residents of certain reciprocal states (Indiana, Maryland, New Jersey, Ohio, Virginia, or West Virginia) may be exempt from Pennsylvania withholding if they file the appropriate exemption certificate, since Pennsylvania has reciprocal tax agreements with those states.
Local Earned Income Tax (EIT)
This is where Pennsylvania payroll gets genuinely complex. Under a framework known as Act 32, nearly every municipality and school district in Pennsylvania imposes its own local Earned Income Tax, and employers are required to withhold it based on the employee's home and work locations.
How it works:
- Every Pennsylvania address is assigned a six-digit PSD (political subdivision) code identifying its specific taxing jurisdiction.
- Employers must determine both the employee's resident PSD code and work-location PSD code.
- Employers generally withhold whichever rate is higher the employee's resident rate or the work-location's nonresident rate and remit accordingly.
- Local EIT is paid to the local Tax Collection District responsible for that jurisdiction, not to the state Pennsylvania has a handful of major regional tax collectors that handle this on behalf of local governments.
- Philadelphia sits outside the Act 32 system entirely and instead imposes its own Wage Tax, at different rates for residents and nonresidents who work in the city.
Because rates and collectors vary by municipality, this is the section of Pennsylvania payroll compliance most likely to trip up employers who are used to a single statewide local rate.
Local Services Tax (LST)
Many Pennsylvania municipalities also impose a Local Services Tax on anyone who works within their borders, regardless of where that person lives. It's a small flat annual amount, typically withheld from paychecks in prorated increments throughout the year rather than all at once.
Key details:
- Capped at a modest annual total per employee, regardless of how many Pennsylvania jurisdictions the person works in during the year
- Municipalities that set the LST above a certain threshold must exempt employees earning below a set income level within that jurisdiction
- Employees working for multiple employers can request that only one employer withhold the tax, once the annual cap has been met, by submitting an exemption certificate
Which Payroll Taxes Are Paid by Employers vs Employees?
| Tax | Employer Pays | Employee Pays |
|---|---|---|
| Unemployment Compensation employer portion | YES | NO |
| Unemployment Compensation employee portion | NO | Withheld from wages, uncapped |
| Personal Income Tax (state) | NO | Withheld from wages (flat rate) |
| Local Earned Income Tax (EIT) | NO | Withheld from wages (varies by municipality) |
| Local Services Tax (LST) | NO | Withheld from wages (small flat annual amount) |
Pennsylvania is one of the few states where employees directly fund part of the unemployment insurance system alongside the employer most states place that cost entirely on the employer.
Pennsylvania Payroll Tax Rates for Employers
Understanding current Pennsylvania payroll tax rates is essential for calculating payroll accurately. The state-level rates are relatively stable year to year, but local EIT and LST rates vary by jurisdiction and can change always verify current local rates before processing payroll.
Pennsylvania Payroll Tax Rates at a Glance
| Payroll Tax | Who Pays | General Rate | Taxable Wage Base |
|---|---|---|---|
| Unemployment Compensation employer | Employer | Experience-based, plus a solvency surcharge and additional contributions tax; separate flat rate for new employers | Fixed annual wage base per employee, set by the state |
| Unemployment Compensation employee | Employee | Small fixed percentage, set annually | No wage cap applies to all gross wages |
| Personal Income Tax (state) | Employee | Flat rate, unchanged for many years | Applies to all compensation, no brackets |
| Local Earned Income Tax (EIT) | Employee | Varies by municipality and school district | Applies to earned income at the local resident or work-location rate |
| Local Services Tax (LST) | Employee | Small flat annual amount, varies by municipality (capped statewide) | Applies per employee per jurisdiction, prorated across pay periods |
Because Pennsylvania local rates are set independently by each Tax Collection District, employers should look up the specific PSD codes and rates for each employee's home and work address rather than assuming a single statewide local rate applies.
Understanding Taxable Wages
Not every Pennsylvania payroll tax applies to wages the same way. Depending on the tax involved, taxable wages may include:
- Hourly wages
- Salaries
- Bonuses
- Overtime pay
- Commissions
- Certain taxable fringe benefits
The employer's UC contribution applies only up to the annual wage base, while the employee's UC contribution and both local taxes generally apply to all earned income without a wage base limit (aside from the LST's own small annual cap). Understanding which wage rules apply to which tax helps avoid both under- and over-withholding.
Pennsylvania Payroll Tax Filing Deadlines
Meeting payroll tax deadlines is just as important as calculating taxes correctly. Late filings or payments can lead to penalties and interest charges and Pennsylvania local tax system adds its own separate filing cadence on top of state deadlines.
State Unemployment Compensation (Form UC-2 / UC-2A)
| Reporting Quarter | Filing Deadline |
|---|---|
| January – March | April 30 |
| April – June | July 31 |
| July – September | October 31 |
| October – December | January 31 |
State Income Tax Withholding
Deposit frequency depends on the amount withheld per quarter: employers withholding smaller amounts file and pay quarterly, mid-size withholders pay monthly, and larger withholders are required to pay semi-weekly, generally within a few banking days of each payday. A quarterly withholding reconciliation return is also required regardless of deposit frequency.
Local Earned Income Tax (EIT) and Local Services Tax (LST)
Local EIT and LST are typically remitted quarterly to the relevant local Tax Collection District, though larger employers may be required to remit monthly depending on the collector's requirements. Because there's no single statewide local filing deadline, employers should confirm the specific schedule required by each employee's local tax collector.
If a deadline falls on a weekend or holiday, it generally moves to the next business day. Creating separate reminders for state and local filings since they run on related but not identical cadences can help ensure nothing is missed.
How to Register for Pennsylvania Payroll Taxes
Before paying employees, businesses typically need to register at both the state and local level.
State registration: Most employers register using the PA-100 (Pennsylvania Enterprise Registration Form), which can cover both state withholding tax and unemployment compensation accounts in a single filing. Once approved, you'll receive an employer account number for UC filings.
Local registration: Employers must also identify the correct local Tax Collection District and register with the appropriate local tax collector(s) for EIT and LST withholding, based on where employees live and work.
During registration, you'll generally need information such as:
- Legal business name
- Federal Employer Identification Number (EIN)
- Business entity type
- Business address and all Pennsylvania work locations
- Owner or responsible party information
- Date employees first performed services in Pennsylvania
- Estimated payroll information
How to File Pennsylvania Payroll Taxes
Filing payroll taxes in Pennsylvania involves more steps than in states without a local tax layer, since employers are managing state and local obligations in parallel. A typical filing process includes:
Step 1: Calculate Employee Wages Determine each employee's gross wages, including regular pay, overtime, bonuses, commissions, and other taxable compensation.
Step 2: Determine PSD Codes and Local Rates For each employee, confirm the resident and work-location PSD codes and the applicable local EIT and LST rates.
Step 3: Calculate Payroll Taxes Calculate the employer's UC contribution, the employee's UC contribution, state income tax withholding, and local EIT/LST withholding.
Step 4: Withhold Employee Taxes Deduct the employee's UC contribution, state income tax, local EIT, and LST from each paycheck.
Step 5: Pay Employer Contributions and Remit Withholding Pay the employer's UC contribution and remit withheld employee taxes to the Department of Revenue, Department of Labor & Industry, and the applicable local tax collector(s).
Step 6: File Payroll Tax Returns Submit Form UC-2/UC-2A quarterly for unemployment compensation, quarterly withholding returns for state income tax, and the required local EIT/LST filings with each employee's local tax collector.
Step 7: Maintain Payroll Records Keep detailed payroll records, Residency Certification Forms, wage information, and payment confirmations in case of future audits or compliance reviews.
Following a consistent payroll process with particular attention to the local tax layer helps reduce mistakes and makes year-end reporting significantly easier.
Frequently Asked Questions
Who is required to pay Pennsylvania payroll taxes?
Most businesses that hire employees in Pennsylvania are required to register with the Pennsylvania Department of Revenue and Department of Labor & Industry, and to withhold and remit local taxes to the appropriate Tax Collection District. Your responsibilities may include paying employer UC contributions, withholding employee UC contributions, state income tax, local EIT, and LST, filing returns, and maintaining payroll records.
What payroll taxes are employers responsible for in Pennsylvania?
Pennsylvania employers generally have responsibilities related to unemployment compensation (both an employer and an employee portion), state personal income tax withholding at a flat rate, local Earned Income Tax withholding, and Local Services Tax withholding in many municipalities. Pennsylvania has no state disability insurance program.
How often do employers file Pennsylvania payroll tax returns?
Unemployment compensation is reported quarterly through Form UC-2/UC-2A. State income tax withholding deposit frequency depends on how much is withheld ranging from quarterly to semi-weekly with a quarterly reconciliation return required either way. Local EIT and LST are generally remitted quarterly, though some local collectors require monthly filing.
How do I register for Pennsylvania payroll taxes?
Employers typically register at the state level using the PA-100 form, which can cover both withholding tax and unemployment compensation. Separately, employers need to identify the correct Tax Collection District for each work location and register with the appropriate local tax collector for EIT and LST withholding.
What happens if payroll taxes are filed late?
Late filings or payments at either the state or local level may result in penalties, interest charges, or additional compliance actions. Pennsylvania UC system, for example, adds a delinquency-related increase to an employer's tax rate if quarterly filings are missed. Filing accurately and on time at every level helps avoid unnecessary costs.
Does Pennsylvania payroll tax apply to remote employees?
Yes, and local tax often depends specifically on where the work is actually performed versus where the employee lives. Pennsylvania has detailed rules for employees who work from home, float between multiple job sites, or travel to short-term assignments, so employers with remote or multi-location employees should review the applicable PSD codes and local rules carefully.
Are Pennsylvania payroll tax rates the same every year?
The state income tax rate has remained flat for many years, and the UC wage base has also been stable, but employer UC rates, the employee UC contribution rate, and local EIT/LST rates can all change from year to year. Local rates in particular are reviewed by municipalities and school districts and can shift at the start of the year or mid-year. Employers should review current state and local guidance annually before processing payroll.
Can payroll software calculate Pennsylvania payroll taxes automatically?
Many payroll platforms include built-in Pennsylvania PSD code lookups and local tax rate tables, which can significantly reduce the manual research otherwise required for local EIT and LST withholding. Given how much of Pennsylvania complexity sits at the local level, this kind of automation is particularly valuable here though employers are still responsible for ensuring payroll information is accurate and up to date.
DISCLAIMER
This article is for general informational purposes only and doesn't constitute legal, tax, or accounting advice. Payroll tax rates and rules especially local rates, which vary by municipality change frequently. Consult a qualified CPA or tax professional for guidance specific to your business.
