Pennsylvania employers have several payroll tax responsibilities, including Local Earned Income Tax (EIT). This tax is collected by municipalities and school districts to support local public services.
Businesses with employees working in Pennsylvania generally must determine the correct EIT withholding rate, deduct the tax from employee wages, and remit the amount to the appropriate local tax collector.
Unlike the Pennsylvania state income tax, which has a flat rate of 3.07%, local earned income tax rates vary depending on where employees live and work. Employers must consider both locations when determining the amount to withhold.
Pennsylvania's Act 32 rules also require businesses to maintain accurate employee residency information, Political Subdivision (PSD) codes, and local tax records.
What Is Pennsylvania Local Earned Income Tax (EIT)?
Pennsylvania Local Earned Income Tax is a tax imposed by participating municipalities and school districts on taxable earned income and certain business net profits. The revenue helps fund local government services, municipal operations, and public education.
The tax generally applies to employee compensation, including salaries, hourly wages, commissions, bonuses, and other taxable earnings. Self-employed individuals may also owe local EIT on taxable net profits.
Pennsylvania's local EIT collection system operates primarily under the Local Tax Enabling Act and Act 32 of 2008. Act 32 established a more consistent collection system for employers and local tax collectors.
The Pennsylvania Department of Community and Economic Development (DCED) provides official information about local EIT rates, PSD codes, tax collection districts, and employer withholding requirements.
Employers should understand that local EIT is separate from Pennsylvania personal income tax, unemployment compensation tax, and Local Services Tax (LST). Each tax has its own rules and reporting requirements.
Who Must Pay Pennsylvania Local Earned Income Tax?
Pennsylvania Local Earned Income Tax is generally paid by employees whose taxable earnings are subject to a local EIT.
Employees who live in a Pennsylvania municipality or school district that imposes EIT may owe tax based on their residential location.
Employees who live outside a particular municipality but work within its boundaries may also be subject to a nonresident earned income tax.
Employers are responsible for withholding the appropriate amount from covered employee wages and remitting the withheld tax to the designated local tax collector.
For example, a company operating in Harrisburg may employ workers living in different municipalities. Although these employees work for the same business, their applicable local EIT withholding rates may differ.
Self-employed individuals can also be responsible for local earned income tax on taxable business net profits. Because they do not receive wages from an employer, they generally report and pay their local EIT directly to the appropriate collector.
Who Is Subject to Pennsylvania Local Earned Income Tax?
Pennsylvania Local Earned Income Tax generally applies to individuals receiving taxable compensation or earning taxable net profits within jurisdictions that impose the tax.
Covered employees may include full-time, part-time, temporary, and seasonal workers. The number of hours worked does not independently determine whether an employee is subject to local EIT.
Taxable compensation commonly includes regular salaries, hourly wages, commissions, bonuses, and other payments treated as taxable earned income under Pennsylvania law.
Employers must identify the employee's residential municipality and work location to determine the correct withholding rate.
Pennsylvania generally requires employers covered by Act 32 to compare the employee's total resident EIT rate with the work location's nonresident EIT rate. The higher applicable rate is used for payroll withholding.
Independent contractors and self-employed individuals may have separate reporting obligations because their income is not normally processed through an employer's payroll system.
Philadelphia follows a separate Wage Tax system, so businesses with Philadelphia employees must apply the city's specific requirements.
Pennsylvania Local Earned Income Tax Rates for 2026
Pennsylvania does not have a single statewide Local Earned Income Tax rate.
Local rates are established by participating municipalities and school districts. As a result, the amount employees pay depends on the tax jurisdictions associated with their residence and work location.
Under the standard Act 32 rules, employers compare the total resident EIT rate with the work location's nonresident EIT rate and generally withhold whichever is higher.
| Tax Component | 2026 Rate or Requirement |
|---|---|
| Statewide local EIT rate | No fixed statewide rate |
| Resident EIT rate | Varies by municipality and school district |
| Nonresident EIT rate | Varies by work municipality |
| Employer withholding rate | Generally the higher applicable resident or nonresident rate |
| Pennsylvania personal income tax | 3.07%, separate from local EIT |
| Employer EIT contribution | No separate standard employer contribution |
| General EIT wage limit | No annual wage cap |
The applicable local EIT rate should be verified using the Pennsylvania DCED address lookup tool. Employers should not assume that every Pennsylvania employee pays 1% or that all employees within a particular county have the same tax rate.
Resident EIT Rate in Pennsylvania
The resident EIT rate is associated with the municipality and school district where an employee lives.
It may include separate municipal and school district earned income tax components.
For example, an employee living in a jurisdiction with a combined resident EIT rate of 1.50% may be required to have that amount withheld from taxable wages, depending on the applicable work location rules.
Employers should use the total resident rate provided by the official DCED lookup rather than combining tax percentages without confirming the correct jurisdictions.
Nonresident EIT Rate in Pennsylvania
The nonresident EIT rate applies to individuals who work within a municipality but live elsewhere.
A work location may impose a nonresident EIT rate that differs from the employee's resident rate.
For example, if an employee's resident EIT rate is 0.50% and the work location's nonresident rate is 1.00%, the employer would generally withhold 1.00% under the standard Act 32 rules.
If the resident EIT rate is higher, the employer generally withholds the resident rate instead.
These rates are illustrative examples. They should not be treated as verified tax rates for a particular Pennsylvania municipality.
How to Find the Correct Pennsylvania EIT Rate
Employers can find the appropriate local earned income tax withholding rate through Pennsylvania's official address search application.
The system allows users to enter an employee's home address and work location. It identifies the relevant PSD codes, resident EIT rate, nonresident EIT rate, and local tax collector.
Complete street addresses should be used whenever possible because ZIP codes can cover more than one municipality or school district.
If the system identifies an unexpected jurisdiction, employers should confirm the correct municipal boundaries with the local government or tax collector.
Pennsylvania Local EIT Taxable Wage Base and Wage Limits
Pennsylvania Local Earned Income Tax does not have a general annual taxable wage limit.
Employers must generally continue withholding local EIT from all covered employee compensation throughout the year.
This is different from Pennsylvania unemployment compensation tax, which has a specific employer taxable wage base.
For example, an employee earning $75,000 annually may be subject to local EIT on the full amount of covered compensation. The employer does not stop withholding after the employee reaches a particular salary threshold.
However, not every type of income is subject to local EIT. Certain retirement benefits, investment income, and other non-earned income are generally excluded.
Businesses should identify taxable compensation correctly and avoid applying local EIT to payments that fall outside the tax base.
Pennsylvania Employer vs. Employee EIT Contributions
Pennsylvania local earned income tax is generally an employee-funded payroll tax.
Employers do not pay a separate standard EIT contribution based on their total payroll. Instead, they deduct the applicable tax from employee wages and remit it to the responsible local tax collector.
| Requirement | Employer | Employee |
|---|---|---|
| Direct tax contribution | Generally none | Pays applicable local EIT |
| Tax rate | No separate employer rate | Depends on applicable local rates |
| Annual wage limit | Not applicable | No general wage cap |
| Payroll withholding | Calculates and deducts tax | Tax is deducted from wages |
| Tax payment | Remits withheld amounts | Generally paid through withholding |
| Reporting | Employer filing requirements apply | Individual filing requirements may apply |
Employers should record withheld EIT as a payroll liability until it is paid to the tax collector.
The amount deducted from employee wages is not an employer payroll expense. It represents tax withheld on behalf of the employee.
How Is Pennsylvania Local Earned Income Tax Calculated?
Pennsylvania local EIT withholding is based on taxable employee compensation and the applicable local tax rate.
Employers must first determine where the employee lives and where the employee performs their work.
The employee's total resident EIT rate is compared with the work location's nonresident EIT rate. Under standard Act 32 rules, the higher applicable rate is generally used.
The employer then applies that rate to the employee's taxable compensation during each payroll period.
For example, an employee receiving $4,000 in monthly taxable wages with an applicable local EIT rate of 1.00% would have $40 withheld for that month.
The withholding continues throughout the year because standard Pennsylvania local EIT does not have an annual wage cap.
Payroll managers should review employee tax information whenever an employee changes their residential address, transfers to another worksite, or begins working remotely from a different municipality.
Practical Pennsylvania Local EIT Payroll Example
Consider a Pennsylvania business with three employees working at the same office. Each employee lives in a different municipality, which affects the local earned income tax withholding rate.
Assume the work location has a nonresident EIT rate of 1.00%.
| Employee | Monthly taxable wages | Resident rate | Work nonresident rate | EIT withheld |
|---|---|---|---|---|
| Employee A | $4,000 | 1.00% | 1.00% | $40 |
| Employee B | $5,000 | 1.50% | 1.00% | $75 |
| Employee C | $6,000 | 0.50% | 1.00% | $60 |
| Total | $15,000 | $175 |
Employee A has the same resident and nonresident rate, so the employer withholds 1.00% of taxable wages.
Employee B has a higher resident EIT rate of 1.50%. The employer therefore withholds $75 from the employee's $5,000 monthly wages.
Employee C has a lower resident rate than the work location's nonresident rate. The employer withholds 1.00%, resulting in a $60 deduction.
The business withholds a combined $175 in local EIT for the month.
This example shows why Pennsylvania employers must review each employee's tax jurisdiction rather than applying one rate to the entire workforce. The rates are illustrative, not address-verified 2026 jurisdiction rates.
Pennsylvania Local EIT New Employer Rates
Pennsylvania does not have a separate new employer Local Earned Income Tax rate.
Unlike unemployment compensation tax, local EIT rates are not based on the age of the business, its payroll history, or its industry.
A new employer follows the same location-based withholding requirements as an established business.
For example, a company opening its first office in Pennsylvania must identify its worksite PSD code and register with the appropriate local tax collector.
The business must also collect employee residency information to determine the correct withholding rate.
New employers should complete these steps before their first payroll to avoid incorrect deductions and reporting problems.
Pennsylvania Local EIT Employer Registration Requirements
Employers with covered worksites in Pennsylvania generally must register with the designated local earned income tax collector for each applicable tax collection district.
Pennsylvania does not use a single statewide employer registration account for all Act 32 local EIT withholding.
The Department of Community and Economic Development provides tools to help employers determine the correct local tax collector based on the business's worksite location.
Employers should identify the municipality and school district for each location, confirm the PSD code, and register with the responsible collector.
Businesses may be required to provide their legal name, Federal Employer Identification Number (FEIN), business address, contact information, and relevant payroll details.
Once registered, the employer receives a local tax account identifier that can be used for EIT reporting and payment.
Businesses with multiple worksites may need registrations with more than one tax collector unless they qualify for an approved combined filing arrangement.
Remote employee work locations may also create registration obligations.
Required Pennsylvania Local Earned Income Tax Forms
Pennsylvania provides standardized forms for local EIT registration, employee residency information, payroll reporting, and annual reconciliation.
| Form | Purpose |
|---|---|
| CLGS-32-6 Residency Certification Form | Records employee residence, work location, PSD codes, and EIT rates |
| CLGS-32-5 Employer Registration Form | Registers an employer for local EIT withholding |
| CLGS-32-7 Employer's Quarterly Earned Income Tax Return | Reports and remits quarterly employee EIT withholding |
| W2-R Annual Reconciliation | Reconciles annual employee EIT withholding |
| Combined Filing Notice | Used for qualifying employers electing combined EIT filing |
| CLGS-32-1 Local Earned Income Tax Return | Used by individuals for local tax reporting |
| CLGS-32-3 Quarterly Estimated EIT Return | Used by individuals required to make estimated payments |
Pennsylvania Residency Certification Form
The Residency Certification Form is particularly important for employer payroll compliance.
New employees must complete the form when hired. Existing employees must provide updated information when their name or address changes.
The form records the employee's residential location, work location, resident PSD code, worksite PSD code, and applicable tax rates.
Employers use this information to determine the correct withholding and distribute taxes to the appropriate jurisdictions.
Completed forms should be retained with employee payroll records.
Pennsylvania Local EIT Filing Requirements
Pennsylvania employers subject to Act 32 generally must file earned income tax withholding returns with their designated local tax collector.
These returns report taxable employee compensation and the local earned income tax withheld during the filing period.
Employers must maintain accurate employee wage records, resident PSD codes, work location PSD codes, and withholding amounts.
Quarterly EIT reporting should reflect the taxes deducted during the preceding calendar quarter.
Employers must also prepare an annual W2-R reconciliation to compare their yearly EIT withholding with employee wage statements and previously filed returns.
Many Pennsylvania local tax collectors provide online filing systems, allowing employers to submit returns and make payments electronically.
Businesses operating across multiple tax collection districts may qualify for combined filing through one designated collector, subject to applicable requirements.
Employers should verify the filing methods accepted by their tax collector and maintain supporting payroll records.
Pennsylvania Local EIT Filing and Payment Frequency
Pennsylvania Act 32 employers generally file and remit local earned income tax quarterly.
Although returns are submitted quarterly, the tax must be withheld when covered wages are paid.
Standard quarterly filings and remittances are due within 30 days following the end of each calendar quarter.
Employers using an approved combined filing arrangement generally must submit returns and payments electronically each month.
Philadelphia has a separate Wage Tax filing system, and payment frequency can vary based on the employer's withholding amount.
| Filing arrangement | Frequency |
|---|---|
| Standard Act 32 employer | Quarterly |
| Combined Act 32 filing | Monthly |
| Annual W2-R reconciliation | Annually |
| Philadelphia Wage Tax | Varies by withholding amount |
Employers should confirm their assigned filing arrangements with the relevant local tax collector.
Pennsylvania Local EIT Important Due Dates for 2026
Pennsylvania's standard Act 32 employer returns and payments are due within 30 days after each calendar quarter.
| Quarter | Reporting period | Standard statutory deadline |
|---|---|---|
| Q1 2026 | January 1 to March 31 | April 30, 2026 |
| Q2 2026 | April 1 to June 30 | July 30, 2026 |
| Q3 2026 | July 1 to September 30 | October 30, 2026 |
| Q4 2026 | October 1 to December 31 | January 30, 2027 |
The Q4 deadline falls on a Saturday. Employers should confirm the collector's weekend and holiday treatment before relying on a later submission date.
Annual EIT Reconciliation Deadline
The W2-R Annual Reconciliation is due on or before the last day of February following the close of the calendar year.
For the 2026 tax year, the nominal deadline is February 28, 2027, which falls on a Sunday.
Employers should verify the applicable filing-day extension with their local collector.
Late submission of quarterly withholding payments or annual reconciliation information can create compliance issues and possible penalties.
Pennsylvania Local EIT Exemptions and Special Rules
Pennsylvania Local Earned Income Tax does not apply to every type of income.
The tax generally covers taxable employment compensation and business net profits. Other income categories may be excluded.
Retirement and Investment Income
Qualifying retirement benefits and Social Security payments are generally not subject to Pennsylvania local EIT.
Ordinary interest, dividends, and other investment income are also generally outside the earned income tax base.
Employers should review the treatment of unusual compensation or benefit payments rather than assuming that every payment is taxable.
Low-Income Exemptions
Pennsylvania law allows local taxing jurisdictions to adopt an earned income tax exemption for individuals whose total annual income from all sources is below $12,000.
This exemption is not automatic across Pennsylvania.
The applicable municipality or school district must have adopted the exemption, and employees must meet its requirements.
Employers should verify eligibility and the necessary documentation before adjusting payroll withholding.
The $12,000 threshold sometimes associated with Pennsylvania Local Services Tax is a separate provision and should not be confused with local EIT rules.
Self-Employed Individuals
Self-employed individuals may owe local EIT on taxable net profits from their business or profession.
Because these individuals are not receiving wages through an employer, they generally report their income and make payments directly to their local tax collector.
Business owners should also distinguish taxable earned income from distributions and other payments that are not treated as compensation.
Employees Working in Multiple Municipalities
Employees who regularly work at more than one location may be subject to special local EIT withholding rules.
Pennsylvania provides guidance for temporary and traveling employees, including distinctions between assignments lasting fewer than 90 consecutive days and longer assignments.
For certain temporary assignments shorter than 90 consecutive days, employers generally use their permanent home office location for the worksite tax comparison.
Longer assignments may require the actual job location to be used.
Employers should document work locations and assignment periods to apply these rules correctly.
Philadelphia Wage Tax
Philadelphia operates its own Wage Tax system rather than following ordinary Act 32 local EIT collection procedures.
For wages paid from July 1, 2026, Philadelphia's rates are:
| Employee category | Rate effective July 1, 2026 |
|---|---|
| Philadelphia residents | 3.735% |
| Nonresidents working in Philadelphia | 3.425% |
The rates in effect from January 1 through June 30, 2026, were 3.74% for residents and 3.43% for nonresidents.
Employers must use the rate applicable to the payment date and employee circumstances.
Philadelphia residents generally remain subject to resident Wage Tax even when working outside the city, with applicable coordination rules.
Pennsylvania Local EIT Rules for Remote Employees
Remote work can affect Pennsylvania local income tax withholding because the employee's actual work location matters.
An employee working from home may have a different worksite location from the employer's main office.
Pennsylvania DCED recognizes home-based employee residences as potential business worksites.
Employers should identify the correct work location, verify the relevant PSD codes, and determine whether additional local tax collector registration is required.
Remote Employees Living and Working in Pennsylvania
Employees who live and work from home in Pennsylvania may be subject to local EIT based on their residential municipality and actual work location.
For these employees, their home address may be both the residence and work location for Act 32 purposes.
Employers should confirm the proper treatment of home-based work arrangements and keep updated residency information.
Pennsylvania Residents Working Outside Pennsylvania
When a Pennsylvania resident physically works outside the state for an out-of-state employer, the employer generally is not required under Act 32 to withhold Pennsylvania local EIT.
However, the employee may still owe resident EIT to their Pennsylvania municipality or school district.
An out-of-state employer may voluntarily arrange to withhold the resident EIT as a courtesy.
Otherwise, the employee may need to make estimated payments directly to the local tax collector.
Out-of-State Residents Working in Pennsylvania
Employees who live outside Pennsylvania but perform covered work within Pennsylvania may be subject to the work location's nonresident EIT.
Pennsylvania identifies out-of-state residents using resident PSD code 880000, with a resident EIT rate of 0%.
The employer must then determine whether the Pennsylvania work location imposes a nonresident earned income tax.
Businesses should not automatically use the employee's home-state tax rate when calculating Pennsylvania EIT withholding.
Common Pennsylvania Local EIT Payroll Mistakes Employers Should Avoid
One common mistake is applying the same earned income tax rate to every employee. Pennsylvania's local EIT rates depend on an employee's residential and work locations, so employees within the same company may have different withholding obligations.
Another frequent issue is using an incorrect PSD code. Employers sometimes rely only on ZIP codes, even though a ZIP code may include multiple municipalities or school districts.
Failing to update an employee's Residency Certification Form can also lead to incorrect withholding. When an employee moves or changes work locations, the payroll team should review the applicable local tax information.
Employers may also confuse Local Earned Income Tax with Local Services Tax. These taxes have different calculation methods, exemption rules, and reporting requirements.
Applying standard Act 32 withholding to Philadelphia employees without reviewing the city's Wage Tax rules is another mistake.
Businesses should also avoid missing quarterly filing deadlines, overlooking remote employee work locations, or failing to reconcile annual withholding information.
Regular payroll reviews and accurate employee tax records can help reduce these problems.
Pennsylvania Local EIT Penalties and Interest for Late Filing or Payment
Employers who fail to withhold, report, or remit Pennsylvania local earned income taxes may face interest charges, penalties, and collection action.
The Local Tax Enabling Act provides enforcement rules for unpaid local taxes and employer withholding violations.
For 2026, Pennsylvania's published state tax interest rate is 7% annually. The interest rate applicable to delinquent Act 32 local EIT is determined under the relevant statutory rules and should be confirmed with the local collector.
The standard late-payment penalty under the local tax law is generally 1% of the unpaid tax per month or part of a month, up to a maximum of 15%.
| Compliance issue | Potential consequence |
|---|---|
| Late local EIT payment | Interest on unpaid tax |
| Unpaid EIT liability | Monthly penalty, generally capped at 15% |
| Failure to withhold required EIT | Potential assessments and enforcement action |
| Failure to provide required tax records | Possible statutory penalties |
| Incorrect or false reporting | Potential additional legal consequences |
Certain willful violations can also result in statutory fines or other enforcement measures.
These penalties should not be confused with Pennsylvania state income tax withholding penalties or Philadelphia Wage Tax penalties, which follow separate rules.
Employers should contact their local tax collector promptly when they identify unpaid balances or reporting errors.
How PayDay Can Help Employers Manage Pennsylvania Local EIT
Pennsylvania local earned income tax can be challenging for businesses with employees living and working across different municipalities.
Payroll teams must manage employee addresses, PSD codes, local withholding rates, payroll deductions, and tax-related reporting requirements.
PayDay payroll software can help businesses simplify payroll administration by supporting automated calculations, employee deductions, organized payroll records, and compliance-related workflows.
Simplify Local EIT Payroll Withholding
PayDay can help payroll teams process employee tax deductions using configured payroll rates and taxable wage information.
This can reduce repetitive manual work and make payroll processing more consistent.
For Pennsylvania employers, keeping location-based tax settings updated is essential for accurate local EIT withholding.
Organize Employee Payroll Tax Information
Employee residency and work location information are important parts of Pennsylvania local tax compliance.
PayDay can help businesses maintain organized payroll records, making it easier for HR and payroll teams to review employee information when addresses or employment arrangements change.
Support Quarterly Payroll Reporting
Pennsylvania employers need accurate employee wage and withholding information when preparing local EIT returns.
PayDay can help organize payroll totals, tax deductions, and related reports for review before filing.
This can support more efficient reconciliation and reduce the need to collect information from separate payroll records.
Support Multi-Location Payroll Management
Businesses operating across Pennsylvania may have employees subject to different local earned income tax rates.
PayDay can help employers manage payroll across multiple locations through suitable configurations and reporting processes.
Employers should confirm that their chosen PayDay setup supports the Pennsylvania-specific tax features they require.
With organized payroll records and automated workflows, PayDay can help businesses spend less time on repetitive payroll tasks while maintaining better visibility into employee deductions and tax-related obligations.
Pennsylvania Local Earned Income Tax FAQs
What Is the Pennsylvania Local Earned Income Tax Rate for 2026?
Pennsylvania does not have one statewide local EIT rate. Rates depend on the employee's residence and work location. Under standard Act 32 rules, employers generally withhold the higher of the total resident EIT rate or the work location's nonresident EIT rate.
Is Pennsylvania Local EIT Paid by Employers or Employees?
Pennsylvania local earned income tax is generally paid by employees. Employers deduct the applicable tax from covered employee wages and remit it to the designated local tax collector. There is no separate standard employer EIT contribution.
Does Pennsylvania Local Earned Income Tax Have a Wage Limit?
No. Pennsylvania's standard local EIT system does not have an annual taxable wage cap. Employers generally continue withholding tax from covered employee compensation throughout the year.
What Is a PSD Code in Pennsylvania?
A Political Subdivision Code (PSD code) is a six-digit number used to identify a Pennsylvania municipality for local tax reporting. Employers use PSD codes to determine the correct tax jurisdiction and ensure withheld EIT reaches the appropriate local tax collector.
How Often Do Pennsylvania Employers File Local EIT Returns?
Most employers covered by Act 32 file local EIT returns quarterly. Reports and payments are generally due within 30 days after each calendar quarter. Employers using combined filing arrangements generally follow a monthly schedule.
Are Remote Employees Subject to Pennsylvania Local EIT?
Remote employees may be subject to local EIT based on their residence and actual work location. Employees working from home in Pennsylvania may create additional local withholding and registration requirements for employers.
Is Pennsylvania Local EIT the Same as Philadelphia Wage Tax?
No. Philadelphia administers a separate Wage Tax system. Effective July 1, 2026, its resident Wage Tax rate is 3.735%, while the nonresident rate is 3.425%. Employers with Philadelphia workers must follow the city's specific withholding and reporting requirements.
Do Pennsylvania Employees Need to File an Annual Local EIT Return?
Employees with taxable earned income generally have local EIT filing responsibilities, subject to applicable exceptions and collector instructions. An annual local return may be required even when the employer has withheld taxes throughout the year. Employees should confirm the filing requirements with their local tax collector.
