Important Changes in the way your EIT is collected!
Understanding and Complying with Act 32,
a significant change in Pennsylvania Local Earned Income Tax Collection
History of Act 32.
Act 32 of 2008 was signed into law by Governor Rendell on July 2, 2008. Act 32 completely restructures the collection of local earned income taxes in Pennsylvania. The law provides that no later than January 1, 2012, employers in Pennsylvania will be obligated to withhold Local Earned Income Taxes on behalf of their employees. Act 32 reduces the number of local earned income tax collectors in Pennsylvania from approximately 560 to 69. A single Tax Collection District was established in each County, except Allegheny County, which has 4 Tax Collection Districts. The County/City of Philadelphia is exempt from the requirements of Act 32.
Each Tax Collection District (“TCD”) established a Tax Collection Committee (“TCC”), made up of delegates from each political subdivision (taxing body) located in the TCD. By September 2010, each TCC must appoint a Tax Officer (collector) to collect earned income taxes on behalf of all of the political subdivisions in each TCD. The appointed Tax Officer may be a political subdivision, public employee, tax bureau, county or a private entity.
According to a July 2, 2008 press release issued by Governor Rendell, Act 32 includes a number of important improvements, including:
- establishing uniform withholding, remittance and distribution requirements;
- requiring that employers withhold all local income taxes imposed on the compensation of their employees and remit those taxes to only one collector, even if an employer operates in multiple counties;
- instituting a continually updated, comprehensive tax register, maximum twice-yearly rate changes, a uniform definition of taxable income and a system of appeals;
- strengthening reporting requirements so that each tax dollar is tracked from the time it is withheld until it is received by the appropriate taxing jurisdiction;
- requiring that the Commonwealth issue one set of rules and regulations that apply to all collectors, taxpayers and employers;
- requiring that the Department of Community and Economic Development (DCED) develop uniform forms, notices, reports, returns, schedules, codes for school districts, municipalities and tax collection districts;
- requiring that tax collectors keep a record of all public monies received and distributed and submit monthly reports to each taxing jurisdiction and the tax collection district that must be reconciled with other records in an annual audit; and
- providing for more accountability, transparency, oversight and enforcement.
What this means for Taxpayers.
In general, as of January 1, 2012, Taxpayers who currently file quarterly local earned income tax returns will no longer be required to do so because, pursuant to Act 32, their employers must do so on their behalf. Taxpayers will still be required to file final returns, reporting the amount of taxes withheld during the prior tax year. If for some reason an employer is exempt from withholding taxes on behalf of any employee, or fails to do so for any reason, that employee must still file and pay his or her local earned income taxes quarterly. Also, self-employed individuals must file quarterly returns, make quarterly payments and file a final return.
What this means for Employers.
Employers must withhold taxes on behalf of employees and file returns with the Tax Officer selected by the TCD in which the employer is located. For employers located in multiple counties, the Act permits the employer to file in a single TCD or multiple TCDs. Many TCDs will collect both the Local Services Tax and Earned Income Tax from employers through a single Tax Officer.
Jordan Tax Service's Response to Act 32.
Jordan Tax Service, Inc. is developing an easy to use secure on-line interface for employers and taxpayers to file their returns and make payments by one of several payment options, including ACH Debit. Employers will also be permitted to file in person at any one of our several offices and by mail.
Detailed information will be posted on our web site over the next several months containing more specific instructions for employers and taxpayers concerning the web interface as well as the mandated format for employer and taxpayer returns. We will also provide instructions by mail and will have representatives to provide additional educational opportunities as well as make themselves available to answer any question that employers may have.
Jordan Tax is committed to providing the highest quality customer service to our Taxing District Clients as well as to the taxpayers and employers residing and doing business therein. Additional detailed information concerning Act 32 will be added to this web site over the ensuing months so that both taxpayers and employers alike are prepared for the transition.