Act 32 Countywide Consolidation of Earned Income Tax Collection
Why Consolidation? • In July of 2008 the Pennsylvania Legislature passed and Governor Rendell signed into law Act 32. • In the current earned income tax system, 560 taxing authorities collect nearly 1.9 billion dollars for more than 2,900 different local taxing jurisdictions. • It is hard to believe, but that’s more than all other states combined. • Under Act 32, Pennsylvania’s fragmented system will now be streamlined down to 69 countywide Tax Collection Districts and regulations will be strictly enforced to provide standardization in the local tax collection process.
Each county (except Philadelphia and Allegheny) has selected a single tax collector Allegheny County = 4 collectors Philadelphia = Exempt from Act 32 560 69
Consolidation Goals • Standardized Forms • Standardized Rules and Regulations • Standardized Codes for all areas • Consistency in collections throughout the tax year for political subdivisions
New Requirements for Local Tax Collection in PA • Businesses must register with the County Tax Collector within 15 days after becoming an employer • Businesses must acquire a “Certificates of Residency” form from each employee. The form has been developed by the Department of Community and Economic Development (DCED). And will be utilize to establish the taxes to be held from each employee. • Employees must alert their employer each time they move and complete a new “Certificate of Residency” • At the time of payment, employers must withhold the greater of the employee’s resident tax for where they live or nonresident tax for where they work as released in the Department of Community and Economic Development (DCED) official tax register
Withholding Examples • There are only two tax rates that an employer must consider when calculating the proper amount of tax to withhold. • The employees resident tax rate or, • The non-resident tax rate for the jurisdiction where it is located • If a community where a person works has a nonresident tax, and that tax rate is higher than the tax rate where that person lives, the community where he or she works is entitled to the difference.
Withholding Examples • Example One If I live in Bristol Township, there is a .5% EIT tax rate and I work in Plymouth Township with a nonresident tax rate of 1.0%. My employer should withhold 1.00 %. Bristol Township would receive .5% and Plymouth Township would receive .5%. • Example Two If I live in Whitemarsh Township, there is a 1.25 % EIT tax rate and I work in Narberth Borough with a nonresident tax rate of 0 %, my employer should withhold 1.25 %. Whitemarsh Township would receive 1.25% and Narberth Borough would receive 0.0% • Example Three If I live in Narberth Borough, where there is no EIT tax and I work in Whitemarsh Township with a nonresident tax rate of 1.0% my employer should withhold 1.00 %. Whitemarsh Township would receive 1.0% & Narberth Borough would receive 0.0%
New Requirements of Tax Collection in PA • Employers must file a quarterly return and are required to pay the amount of tax withheld during the preceding period at that time • Businesses with places of employment in multiple counties can chose to submit all of their withholding information and payments to one county collector, to do so the employer must agree to: • Give 30 day notice to the Collector they intend to file with • Notify all of tax entities it has locations in of their intent to file one consolidated return • file electronically • file every 30 days
NewRequirementsofTax Collection in PA Employers must provide • Each employee’s name, address, and social security number. (Address cannot be a PO Box, must be street name and house number) • Each employee’s compensation during prior 3 months. • Tax amount deducted from each employee. • Provide the proper Political Subdivision Code for each employee.
NewRequirementsofTax Collection in PA Employers must provide • If an employee moves during the reporting period the employer will need to list the employees wages attributed to each PSD separately on the return filed. • Being for the 2012 Tax Year, the information to be shown in the “Locality Box” on the W-2 will be the 2 digit county code to which the funds were remitted. (This code is the first 2 digits of the employers PSD code.)
New Requirements of Tax Collection in PA For resident and non-resident withholding, every employer must use the DCED officialtax register to determine the tax rate applicable to every employee and list the proper Political Subdivision Code (PSD)for where they live. The Official Tax Register is located at http://munstatspa.dced.state.pa.us/Registers.aspx Secondary resource: www.factfinder2.gov A link to the Political Subdivision Codes (PSD) codes is provided at http://www.hab-inc.com
Employer Download – PSD Codes • Berkheimer has developed a program that allows employers in our client jurisdictions to submit a file, in a .csv (comma delimited) format. The file needs to contain: • Employee Social Security number • Employee’s name • Address (no PO Boxes) • City • State • Zip
Employer Download – PSD Codes • Within 48 hours (2 business days) the employer will receive the file back and it will contain: • Identifier (SSN or E-ID) • Name • Address (standardized version) • City (standardized version) • State (standardized version) • Zip code (standardized version) • PSD code (taxjur.psd-juris or zero if unknown) • PSD name (taxjur.name or “UNKNOWN”) • Current tax jurisdiction rate
Employer Filing Options • Employers with less than 25 employees will have the option to file utilizing a paper return • Download a form or, • Print, fill out and mail • Employers with more than 25 employers will be strongly encouraged to file electronically. • Employers who file electronically have 3 options. • On-line filing – Employer has 3 options to submit its file • Data Entry – Employer would access form on line and input all required data. • CSV file format • Federal File Format
Employer Filing Options • Instructions on how to file electronically using each of the previously noted options are located on our website at: www.hab-inc.com • Then choose: • Electronic Services • Business E-file • Then: • Return Type (File Upload, Employer E-1 or W2-R Upload • You will then follow the login or Create a new account instructions.
Changes to Individual Filings • There are also 3 notable changes under Act 32 that effect individual taxpayers as well. They are as follows: (all took effect for the 2009 tax year forward) • Individuals may no longer utilize Net Losses from the operation of a business as an offset against W-2 wages earned. • Individuals who operate multiple businesses may now offset the net loss from one business against the net profits of another. The aggregate , if greater than $0, is what is taxed locally. • Self employed/employed outside the state who do not have the taxes due withheld by an employer are required to file and pay taxes quarterly.
Contact information • James Hunt, Director of Sales and Client Services • 50 N. Seventh St. • Bangor, PA 18013 • (800) 360-8989 ext 2413 • (610) 588-5765 (fax) • (610) 363-2623 (Exton) • email@example.com • Link to DCED Certificate of Residency • www.newpa.com/webfm_send/1605or at • www.hab-inc.com – ACT 32 Information