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
can help ease the learning curve when it comes to Pennsylvania payroll taxes and laws.
Pennsylvania payroll taxes
Pennsylvania has many layers of state payroll taxes. One is paid by both employees and employers, and the rest are paid by employees.
Taxes paid by both employees and employers
Pennsylvania Unemployment Compensation
In Pennsylvania, both you and your employees pay
The employer portion of the UC tax is paid on the first $10,000 of each employee's earnings each year. The tax rate is specific to your business, and you'll receive a
toward the end of each calendar year that has your rate for the following year. 2019 rates range between 2.3905% and 11.0333%.
New Pennsylvania employers pay the new employer UC rate for the first two or three years before their rate may be adjusted. Those in the construction field pay a 10.2238% UC rate in 2019 while new non-construction employers pay a rate of 3.6890%.
For the employee portion of the UC tax, you must withhold 0.06% from employees' wages. Unlike the employer portion, there is no wage limit for the employee portion. Every dollar the employee earns is subject to the UC tax.
Taxes paid by employees
State income tax
Similarly, there's no wage limit when it comes to state income tax. How much you withhold from your employees' earnings, however, can depend on where they live.
For most employees who work in Pennsylvania, you must withhold 3.07% of their earnings for state income tax. This is the 2019 rate regardless of an employee's income or tax filing status.
However, if an employee resides in Indiana, Maryland, New Jersey, Ohio, Virginia, or West Virginia, you don't withhold the Pennsylvania income tax. Instead, you must withhold the other state's income tax and pay that tax to the other state.
To help you figure out which state's income tax to withhold, have all new employees complete theEmployee's Nonwithholding Application Certificate (Form REV-419 EX). Current employees should also complete the form again when they move.
Keep a copy for your records. You may also be required to submit a copy to the Pennsylvania Department of Revenue in certain situations (see
Responsibilities of Employer
Pennsylvania local taxes
In addition to state income tax, employees who live or work in Pennsylvania may also have to pay local wage taxes.
Pennsylvania local taxes can be confusing, but having your employees complete the
Residency Certification Form
will help. It'll give you the information you need to determine the correct amount of tax to withhold.
Philadelphia Wage Tax
For example, as of July 1, 2019, you must withhold 3.8712% of earnings for employees who live in Philadelphia. This Philadelphia Wage Tax is required of all Philadelphia residents, regardless of where they work.
Conversely, if your employees work in Philadelphia but reside elsewhere, you must withhold the non-resident rate of 3.4481%.
Local Earned Income Tax (EIT)
Businesses with employees working in Pennsylvania are also required to withhold the applicable
local earned income tax
amount from employees' wages and remit the tax to the appropriate local tax collector.
Compare your employee's residential address EIT rate to the EIT rate of their work location to determine their EIT withholding rate. The higher of the two rates is collected, but the withholding is always paid to the tax collector for the work location.
Sound a little complicated?
Use this government tool
to find the appropriate local earned income tax rate for each of your employees.
Local Services Tax
Then there's the
Local Services Tax (LST).
It's a flat tax, which means everyone pays the same amount no matter their income. The annual amount is usually prorated by the number of pay periods in the year and paid quarterly to the appropriate tax collector. (The exception is for LSTs of $10 or less. These small amounts can be withheld and remitted in one payment at the beginning of the year or when a new employee starts.)
To locate which LSTs apply to your employees and where the taxes should be remitted, you can
enter their work and home address here.
School district taxes
Okay, one more local tax to go over.
Some school districts in Pennsylvania have enacted an earned income tax on their residents. You can use the same
local tax rate finder
to find which school district taxes apply to your employees.
In some cases, a city and a school district may both impose an earned income tax on the same employee. In those cases, use the local tax rate finder to determine how much tax to pay to the city and how much to pay to the school district.
Federal payroll taxes to include
Just like Pennsylvania payroll taxes, federal payroll tax payments are split between employers and employees.
Employers and employees both pay: FICA
Federal Insurance Contributions Act (FICA) tax
contains both Medicare tax and Social Security tax. In 2019, the total tax is 15.3%.
Here's how it's broken down:
- For Social Security tax, employers and employees each contribute 6.2% of wages up to $132,900.
- For Medicare tax, they each contribute 1.45% of earnings. There's no wage cap on the Medicare tax.
Employers pay: FUTA
In 2019, the
federal unemployment tax
(FUTA) is 6% on the first $7,000 of each employee's wages each year.
However, most employers qualify for a much lower rate of 0.6%. If you pay your state unemployment taxes on time, you'll likely earn a 5.4% federal tax credit. That makes your effective FUTA rate 0.6% and brings down your maximum payment per employee.
Employees pay: federal income tax and Additional Medicare tax
Federal income tax is withheld from employees' paychecks based on their withholding selection on theirForm W-4. Make sure every employee completes a W-4 when they are hired.
Lastly, Additional Medicare tax is imposed on employees who make more than a certain amount (varies by filing status). The 2019 tax rate is 0.9% and is withheld from employee earnings that exceed $200,000 per year.
Pennsylvania paycheck rules to know
Providing pay stubs
All employers must provide pay stubs that detail:
- The number of hours the employee worked,
- What the rate of pay was,
- Gross wages earned,
- Any tax deductions,
- Any other authorized deductions (if applicable), and
- The start and end dates of the pay period that pay stub is for.
There is no Pennsylvania law requiring employers to provide sick pay unless the employer has a policy or contract to pay these benefits.
Philadelphia:Under the City of Philadelphia's Promoting Healthy Families and Workplaces Ordinance, employers with employees that work in Philadelphia must provide one hour of sick time for every 40 hours worked.
If you have ten or more employees, this must be paid sick time. Employers with fewer than ten employees must provide unpaid sick time at the same rate.
You must pay non-exempt employees 1.5 times their hourly rate for all hours worked beyond 40 hours in a week.
And overtime must be paid in wages—you can't offer compensatory time off (“comp time”) in place of paying overtime.
Additional Pennsylvania payroll rules to be aware of
Make sure to keep the following important rules in mind:
Reporting new hires:
Employers must report new hires to Pennsylvania's
Commonwealth Workforce Development System
within 20 days of hire or rehire.
Notifying new employees:
When a new employee is hired, you must notify them of the time and place where they pick up their paycheck. You must also tell them their rate of pay and the amount of any fringe benefits or wage supplements to be paid on their behalf (e.g., union dues).
Paying for on-call time:
Depending on the situation, you may have to pay employees for “on-call” time. Consult
Pennsylvania's Department of Labor & Industry's
website for details.
Paying independent contractors:
If you pay a contractor who doesn't live in Pennsylvania at least $5,000 per year, you must withhold the 3.07% state income tax from their payments.
Sending final paychecks:
When an employee resigns, is fired, or is laid off, you have until the next regular pay date to provide their final paycheck.