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Pennsylvania Payroll Taxes and Laws

If you’re an employer in Pennsylvania, there are many payroll taxes and laws you need to know about. Local income taxes, federal payroll taxes, and sick leave laws are just a few of the things you’ll need to keep track of.  Sound like a lot? Using an automated payroll system or hiring an experienced payroll accountant can help ease the learning curve when it comes to Pennsylvania payroll taxes and laws. 

Pennsylvania payroll taxes

Here’s what you need to know about withholding payroll taxes in Pennsylvania.

• Pennsylvania payroll taxes start with employees filling out Form UC-657. This information helps you determine how much you should withhold. 
• If an employee does not complete this form, you will need to withhold tax as though no exemptions were claimed.
• Employees need to update Form UC-657 in case of life events (such as marriage, divorce, birth or adoption of a child, etc.) which may impact their taxes.
• The personal income tax rate in Pennsylvania is 3.07%.
• Pennsylvania has reciprocity with the following states: Indiana, Maryland, New Jersey, Ohio, Virginia and West Virginia.

Additional Pennsylvania forms

In addition to Form UC-657 mentioned above, Pennsylvania employers also need to file the following forms:

1. Employer Quarterly Return of Withholding Tax (PA W-3)
2. W-2 Transmittal (REV-1667 AS)
3. Wage and Tax Statement (State W2)
4. Employer’s Unemployment Insurance Tax Report (UC-2)
5. Employer’s Report for Unemployment Compensation (Form Detail UC-2)
6. New Hire Report
7. Various local returns

Pennsylvania unemployment tax rate

Pennsylvania requires most employers to pay unemployment insurance tax to help compensate workers who are out of work through no fault of their own. 

• Employers pay Pennsylvania unemployment tax on the first $10,000 of an employee’s wages.
• New employers pay at a rate of 3.822%.
• New employers who are in the construction industry pay at a rate of 10.59%.
• Experienced employers pay at a rate of 1.419%–13.6494%.
• Unemployment tax in Pennsylvania should be paid quarterly to the Pennsylvania Department of Labor and Industry.

Paying Pennsylvania taxes

Pennsylvania’s payment frequency is quarterly.

Other Pennsylvania taxes

Pennsylvania employers are also required to pay or withhold the following taxes.

• Earned Income Tax
• School District Tax
• Local Service Tax
• PSD Codes
• Scranton Payroll Preparation Tax (HAB-PPT)

Pennsylvania minimum wage

In 2023, the minimum wage in Pennsylvania is $7.25 per hour.

Pennsylvania overtime pay

Because Pennsylvania doesn’t have any state law governing overtime pay, the federal rules under the Fair Labor Standards Act apply. Generally speaking, hourly employees are to be paid time-and-a-half for all hours worked over 40 hours in a week.

Federal payroll taxes

Like the state, the federal government also has an unemployment tax. It’s called FUTA and it’s an annual tax employers pay on the first $7,000 of each employee’s wages. The FUTA rate for 2022 is 6%, but many employers only have to pay 0.6% each year.

Federal income tax

Unless they are exempt, your employees will pay federal income tax.

• You must withhold federal income tax from employees’ pay, unless they are exempt. 
• Each employee’s Form W-4 will differ based on their filing status and dependents, among other details—so the amount of income tax to be withheld will vary.
• Form W-4 does not need to be sent to the IRS, but should be kept for your records.

FICA

Both you and your employees will pay Federal Insurance Contributions Act, or FICA tax.

• FICA is made up of the Medicare tax and the Social Security tax. 
• In 2023, the Social Security tax requires employers and employees to each contribute 6.2% of wages up to $2,600. 
• The Medicare tax requires employers and employees to each contribute 1.45% of all wages. 

See the IRS webpage for details, like maximum thresholds.

FUTA

Like the state, the federal government also has an unemployment tax, called FUTA, which is paid by employers.

• FUTA is an annual tax an employer pays on the first $7,000 of each employee’s wages. 
• The FUTA rate for 2023 is 6.0%, but many employers are able to pay less, for instance, up to 5.4% each year due to tax credits.

Most employers will pay this tax annually with Form 940. But larger employers with more than $500 in tax due will have to pay quarterly.

Additional Medicare tax

The Additional Medicare tax is paid by employees. Here’s what you should know:

• For employees who earn over $200,000 per year, 0.9% of earnings will need to be withheld for the Additional Medicare tax. 
• Whether or not your employee owes this tax may depend on their filing status.

Paying federal taxes

You must pay non-exempt employees 1.5 times their hourly rate for all hours worked beyond 40 hours in a week. 

How often you’ll pay federal payroll taxes depends on how much you owe.

• Semi-weekly or monthly payments are required for federal withholding, Additional Medicare, and FICA taxes. And every quarter, a summary payroll tax return is due on Form 941, Employer’s Quarterly Federal Tax Return.

Quarterly or annual payments are required for federal unemployment tax. Most employers will pay annually, but quarterly payments are necessary if you owe more than $500. Each time you make a payment, you’ll need to file a payroll tax return on Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return.

Workers’ Compensation

Requirements to obtain Workers’ Compensation vary by state. This table outlines some of these requirements. If you determine that your company is required to purchase Workers’ Compensation insurance in your state, learn how to sign up for this insurance with Gusto. Sometimes, companies get a request for a workers’ comp audit—head to this article and click the workers’ comp audit reports dropdown for more information. 

New hires

Employers in Pennsylvania need to report new employees.

• New hires must be reported to PA CareerLink – Report New Hires.
• New hires must be reported within 20 days of their first day of work. 

Payroll stubs

You must provide a pay stub to every employee that includes:

1. Company’s legal name and address
2. Employee’s name and last four digits of their Social Security number
3. Pay period beginning and end dates
4. Total hours worked
5. Rate of pay
6. Gross wages
7. The amount and reason for any deduction

Final paychecks

Employers must pay final wages to employees within a certain timeframe, depending on the circumstances for leaving.

• If a worker voluntarily, you’re required to pay them no later than the day after their last day.
• For layoffs and involuntary terminations of employment, you’re required to pay them on their last day. If the employee requests that their final paycheck be paid by mail, you must comply.

Time off

Pennsylvania law requires employers to provide the following types of time off to employees.

• Jury duty leave is required of all employers, except those in the retail or service industry with fewer than 15 employees, and employers in the manufacturing industry with fewer than 40 employees.

We’re here to help

If you don’t love manual number crunching and payroll taxes sound overwhelming to you, take advantage of Gusto’s full-service payroll options or use an experienced accountant to help you with the process.