Setting up local taxes for Pennsylvania

Starting January 1, 2012, Pennsylvania requires employers to withhold the higher of the employee's resident earned income tax amount or employee's non-resident earned income tax amount, unless the tax district is Philadelphia. For more information visit Act 32: Local Income Tax Information

Act 32 Definitions

Act 32 reduces Pennsylvania’s number of Earned Income Tax (EIT) collectors from 560 to 21. The appointment of collection responsibility falls on countywide committees made up of representatives from local municipalities and school districts. The committees established tax collection districts and elected tax officers to collect the EIT. Act 32 requires uniform withholding of earned income taxes and remittance to a single local collector or Tax Officer.

• All employers, located in Pennsylvania, must withhold the non-resident tax rate for employees living outside of Pennsylvania, if one exists.
• For employees living within Pennsylvania, the employer is required to withhold at the higher rate of either the employee’s resident rate or the non-resident rate in which the employer (job) is located.
• Employers located in political subdivisions who do not have a tax in place will be required to withhold taxes for all employees who are residents of Pennsylvania who have a resident tax for the locality in which they live and remit them to the Tax Officer.
• Philadelphia has special rules.

5-3-6 Local Payroll Tax Setup

To set up the Local Payroll Tax Districts:

1. Open 5-3-6 Local Payroll Tax.

2. In the District# cell, enter a district number for the locale.

   Important! For the city of Philadelphia, enter 510101 to the District# cell. Sage 100 Contractor uses this number as an identifier for the City of Philadelphia local tax district.

3. In the District Name cell, enter a description of the district.
4. In the Resident Rate cell, enter the rate paid by residents.

5. In the Non-resident Rate cell, enter the rate paid by non-residents.

   Important! If the district does not make a distinction between residents and non-residents, enter the same rate in the Resident Rate and Non-resident Rate cells.

6. In the Tax State cell, enter PA for the state abbreviation.
7. Repeat steps 2–6 for each tax district.
8. Click File > Save.
9. Set up the 5-3-1 Payroll Calculation for each district created.

5-3-1 Payroll Calculation Setup

A separate 5-3-1 Payroll Calculation must exist for each Local Payroll Tax district that your employees reside or work in.

To set up a Payroll Calculation for a local payroll tax district:

1. Open 5-3-1 Payroll Calculations.
2. In the data control box, enter the record number you want to assign to the new calculation.
3. In the Description box, enter a brief statement about the calculation.
4. In the Tax Type list, click 13-Local Income Tax.
5. In the Calculation Method list, select 17-Tables. The payroll calculation uses the rates from 5-3-6 Local Payroll Taxes.
6. In the Tax Locale list box, select the Local Payroll Tax district that this calculation is for.
7. In the Credit Acct cell, enter the ledger account that you want to credit.
8. Click File > Save.

5-2-1 Employee Setup

Complete the following steps for each employee:

1. Open 5-2-1 Employees.
2. In the data control box, enter the employee record number.
3. Click the Human Resources tab, and then:
   1. In the Residence Locale field, select the district the employee resides in. Leave this field blank if no local tax applies to the employee's residence.
   2. In the Work Locale field, select the district the employee works in. Leave this field blank if there is no local tax district for the place of employment.
4. Click File > Save.

3-5 Job Setup

Complete the following steps if:

• Your company is not based in Pennsylvania but the job is in a Pennsylvania tax collection district and you are required to withhold the local tax.

  Or

• Your company is based in Pennsylvania and you need to withhold tax for the job tax collection district instead of the tax district your company is based in.

1. Open 3-5 Jobs (Accounts Receivable)
2. In the data control text box, enter the job number.
3. If the job is in a local payroll tax district, select the correct district in the Payroll Locale text box.
4. Click File > Save.

How Pennsylvania local taxes are calculated

• An employee resides in a Pennsylvania tax district but works outside of Pennsylvania.
  Resident Pennsylvania tax will be calculated for the locality in the employee record.
• An employee works in a Pennsylvania tax district but does not reside in Pennsylvania:
  Non-resident Pennsylvania tax will be calculated for the locality on the time card line.
• An employee lives in a Pennsylvania tax district (not Philadelphia) and works in the same Pennsylvania tax district (not Philadelphia):
  Resident Pennsylvania locality tax will be calculated since the employee works in the same district as they live.
• An employee works in a Pennsylvania tax district (not Philadelphia) and resides in another Pennsylvania tax district (not Philadelphia):
  The higher of the two rates is used, the non-resident Rate of the local tax district associated with the timecard line OR the resident rate associated with the employee. The amount is associated and paid to the district they work in.
• An employee works in Philadelphia and resides in Pennsylvania (not Philadelphia):
  The non-resident Philadelphia tax will calculate.
• An employee works Pennsylvania (not Philadelphia) and resides in Philadelphia:
  The resident Philadelphia tax will calculate.
• An employee works in Philadelphia and resides in Philadelphia.:
  The resident Philadelphia tax will calculate.
• An employee lives in Philadelphia and works in another state.:
  The resident Philadelphia tax will calculate.

No Localities entered on timecard lines

If no localities are entered on the timecard lines for records with timecard lines or for salaried records, local tax will calculate using the resident rate that is on the 5-2-1 Employees record. This is the same for records with or without timecard lines.