Beginning January 1, 2012, the rules will change for local tax collection for all Pennsylvania employers and employees.  This new law, known as PA Act 32, will streamline local tax withholding for employers and reduce PA tax collection overhead costs by reducing the number of collectors from 560 to 69. 

PA Act 32 eliminates split tax collectors by allowing one tax collector for each tax collection district (TCD) or county, except Philadelphia to which Act 32 does not apply, and there will be four TCDs in Allegheny County.  It will be the responsibility of each TCD Tax Officer to forward the withholdings to the appropriate TCD in which each employee resides.  Employers will need to register only with their TCD and employers with multiple locations may voluntarily remit withholding taxes to the TCD where their payroll processes occur or the location of their headquarters.

Pennsylvania employers will be required to obtain a Certificate of Residency from all employees and shall deduct from an employee's compensation the greater of the employee's resident tax or the employee's nonresident tax as released in the official register maintained by the PA Department of Community and Economic Development (DCED).  Municipalities may impose a tax on nonresidents employed in their municipalities; however, they must grant a credit for any earned income tax levied at the place of residence.

Employers will be required to file quarterly returns with the TCD as well as an annual return and employees are still required to file a final return with their community TCD Tax Officer.  This same information applies to self-employed individuals.  Additional guidelines are necessary for employers with multiple locations that choose to file in one location including more frequent reporting and electronic payments.  An employer who does not file the local withholding returns properly may be required to file returns and pay tax monthly, and interest and penalties will be assessed.

Our Outsourcing Team is readily available to you for specific questions and to help you make this change.  Please feel free to contact Carbis Walker LLP offices at 1-800-452-3003 or your Client Services Coordinator for more details.  Further information regarding this change in Pennsylvania local tax collection will become available soon.