Payroll Taxes and Compliance in Pennsylvania
Paying your employees in Pennsylvania involves complying with many laws and calculating several taxes. Depending on where you’re based, the payroll taxes you pay and withhold can vary. But don’t worry—we’ll help you make sense of it all.
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 only 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:
- Employer Quarterly Return of Withholding Tax (PA W-3)
- W-2 Transmittal (REV-1667 AS)
- Wage and Tax Statement (State W2)
- Employer’s Unemployment Insurance Tax Report (UC-2)
- Employer’s Report for Unemployment Compensation (Form Detail UC-2)
- New Hire Report
- 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%.
- 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 salary threshold
Because Pennsylvania doesn’t have its own salary threshold, it adheres to the federal salary threshold.
- The federal salary threshold is now $684 per week on a salary basis or on an hourly basis at a rate not less than $27.63 an hour.
- The Department of Labor permits employers to count some bonuses, commissions, and other incentive payments toward meeting the standard salary level (up to 10%).
- Employees who earn at least $107,432 per year may qualify as “highly compensated.”
- See this Department of Labor fact sheet for details.
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.
Employers in Pennsylvania need to report new employees.
- New hires must be reported through the Pennsylvania CareerLink.
- New hires must be reported within 20 days of their first day of work.
You must provide a pay stub to every employee that includes:
- Company’s legal name and address
- Employee’s name and last four digits of their Social Security number
- Pay period beginning and end dates
- Total hours worked
- Rate of pay
- Gross wages
- The amount and reason for any deduction
Employers must pay final wages to employees within a certain timeframe, depending on the circumstances for leaving.
- If a worker voluntarily resigns, 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.
Pennsylvania law requires most employers to provide time off for jury duty. The exceptions are for employers in the retail or service industry with fewer than 15 employees, and manufacturing industry employers with fewer than 40 employees.
Federal payroll taxes
In addition to Pennsylvania-specific taxes, both you and your employees will pay a variety of federal payroll taxes. Check out the breakdown below.
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.
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.
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 that 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
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.
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.