Pennsylvania Local Earned Income Tax (2024)¶
Quick Reference¶
What is Local EIT?¶
Local Earned Income Tax: Tax on wages and self-employment income imposed by municipalities and school districts
Rate Range: 0.5% to 3.9%+ (varies by municipality)
Split: Divided between resident municipality and resident school district
Applies to: Class 1 (Compensation) and Class 4 (Net Profits) only
Common Rates (2024)¶
Philadelphia: - Resident: 3.8398% (includes city wage tax) - Nonresident: 3.4481% (working in Philadelphia)
Pittsburgh: - Resident: 3.00% total (1% city + 2% school district)
Allentown: - Resident: 1.50% total
Erie: - Resident: 1.65% total
Reading: - Resident: 3.60% total (1.25% city + 2.35% school district)
Suburban ranges: - Typically 0.5% to 2.0% total - Lower in rural areas - Higher near cities
PSD Codes¶
Political Subdivision Code (PSD): 9-digit code identifying municipality and school district
Format: CCMMMSSS - CC = County code (2 digits) - MMM = Municipality code (3 digits) - SSS = School district code (3 digits)
Example: 230351302 - 23 = Montgomery County - 035 = Lower Merion Township - 1302 = Lower Merion School District
Details¶
What Income is Subject to Local EIT¶
Taxable for local EIT:
Class 1 - Compensation: - Wages and salaries - Bonuses and commissions - Tips - Severance pay - Restricted stock units (when vested) - Stock option exercise (spread)
Class 4 - Net Profits: - Self-employment income - Business income - Partnership distributive share - S corporation distributive share (not wages)
NOT taxable for local EIT:
Investment income (Classes 2, 3, 5, 6, 7, 8): - Interest - Dividends - Capital gains - Rental income - Royalties - Estate/trust distributions - Gambling winnings
Retirement income: - Pensions - 401(k) distributions - IRA distributions - Social Security
Resident vs. Work Location¶
Resident tax: - Imposed by resident municipality/school district - On ALL compensation and net profits - Regardless of where work is performed
Work location tax: - Some municipalities impose tax on nonresidents working in municipality - Lower rate than resident tax - Credit for resident tax paid
Total cannot exceed resident rate: - If work location tax + resident tax > resident rate - Taxpayer gets credit - Net effect: pay higher of two rates
Example: - Resident of Municipality A (1.5% EIT) - Works in Philadelphia (3.4481% nonresident) - Pays Philadelphia 3.4481% - Gets credit against Municipality A - Net: pays 3.4481% total (not 1.5% + 3.4481%)
How to Find Your Local Rate¶
Step 1: Determine your PSD code: - Use PA Department of Revenue PSD code lookup - Need home address (zip code not sufficient) - School district may cross multiple municipalities
Step 2: Look up rates: - PA Department of Revenue maintains rate tables - Tax collector websites - Updated annually (rates change)
Step 3: Split between municipality and school: - Total rate splits between municipality and school district - Example: 1.5% total might be 0.5% municipal + 1.0% school - Taxpayer pays total, collector distributes
Tax Collectors¶
PA uses local tax collectors:
Three main collection systems:
Keystone Collections Group (KCG): - Collects for many municipalities in eastern PA - Online filing available - Covers Bucks, Chester, Delaware, Montgomery counties and others
Jordan Tax Service: - Collects for many municipalities in western PA - Online filing available - Covers Allegheny, Beaver, Butler, Washington counties and others
Berkheimer Tax Administrator: - Collects for municipalities in central PA - Online filing available - Covers Lancaster, York, Lebanon, Dauphin counties and others
Individual municipal collectors: - Some cities (Philadelphia, Pittsburgh) collect own taxes - Smaller municipalities may use local collector - Must contact municipality directly
Filing Requirements¶
Who must file:
Residents: - All residents with compensation or net profits - Even if worked outside municipality - Even if minimal income
Nonresidents: - Nonresidents who worked in municipality with work location tax - Must file return for work municipality
Part-year residents: - File for months as resident - Prorate compensation by months (not days like state)
Withholding¶
Employer withholding required:
Resident employees: - Employer withholds based on employee's home PSD code - Employee provides PSD code on withholding form - If employee doesn't provide, employer withholds highest rate in area
Nonresident employees: - Employer withholds for work location - If work location has EIT
Multiple work locations: - If employee works in multiple PA municipalities - Withhold based on primary work location - Adjust at year-end
Reciprocal Agreements¶
PA has reciprocal agreements with:
Bordering states (wages only): - Indiana - Maryland - New Jersey - Ohio - Virginia - West Virginia
Effect: - Residents of reciprocal states working in PA: no PA withholding - PA residents working in reciprocal states: no withholding by other state - Must file Form REV-419 with employer - Applies to wages only, NOT self-employment
Local EIT impact: - Reciprocal agreement affects STATE tax only - PA residents still owe local EIT on all compensation - Even if earned in reciprocal state
Example: - PA resident works in New Jersey - No NJ state tax (reciprocal agreement) - Still owes PA state tax (3.07%) - Still owes PA local EIT (e.g., 1.5%)
Philadelphia Wage Tax¶
Philadelphia is unique:
Separate city tax system: - Not part of typical local EIT structure - City administers directly - Different forms and procedures
Resident rate (2024): 3.8398% - On all compensation earned anywhere - On all net profits from business
Nonresident rate (2024): 3.4481% - On compensation for work in Philadelphia - On net profits from Philadelphia business
Day allocation: - Nonresidents allocate by days worked in Philadelphia - Track days carefully - Remote work days = not Philadelphia
Withholding: - Employers withhold using Philadelphia forms - Different from other municipalities
Forms: - Earnings Tax (former name for Wage Tax) - File with City of Philadelphia, not state - https://www.phila.gov/services/payments-assistance-taxes/taxes/
Pittsburgh Wage Tax¶
Pittsburgh has city earned income tax:
Resident rate (2024): 3.00% total - 1% City of Pittsburgh - 2% Pittsburgh School District
Nonresident rate: 1.00% - On compensation for work in Pittsburgh - On net profits from Pittsburgh business
Regional Asset District (RAD): - Additional 1% sales tax in Allegheny County - Does NOT apply to EIT
Common Issues¶
Wrong PSD code: - Employee provides incorrect code - Employer withholds for wrong municipality - Must file amended returns to correct - Request refund from one, pay to other
Multiple municipalities: - Resident of one, work in another - Must file return for both - Claim credit for work location tax - Net effect: pay resident rate
Part-year resident: - Moved during year - File return for each municipality/school district - Allocate income by months resident - Pro-rate based on time
Self-employment in multiple locations: - Net profits allocated by business location - If business in multiple municipalities, allocate by activity - Complex calculations
Reciprocal state confusion: - Reciprocal agreement = state tax only - Does NOT exempt from local EIT - PA residents always owe local EIT
Credits and Deductions¶
Credit for work location tax: - If paid EIT to work municipality - Credit against resident municipality - Cannot exceed resident rate
Tax Forgiveness: - State tax forgiveness program - Does NOT apply to local EIT - Local EIT still due even if state forgiven
No other credits: - No local earned income tax credits - No dependent credits - No charitable contribution credits
Penalties and Interest¶
Late filing: - 10% penalty on unpaid tax - Plus interest at state rate
Late payment: - Interest on unpaid tax - Accumulates monthly
Underpayment of estimated tax: - If self-employed or insufficient withholding - Penalty and interest apply
Local Services Tax (LST)¶
Separate from EIT:
Flat annual tax: - Up to $52 per year - On employees and self-employed - Imposed by municipality or school district
Low-income exemption: - If income under $12,000 per year - Complete exemption form - Provide to employer
Employer withholding: - Withheld from paychecks - Typically $1 per week or $4.33 per month
Not income-based: - Flat amount regardless of income - Work location only (not residence)
Citations¶
Pennsylvania Local Tax Enabling Act: - 53 P.S. § 6924.301 et seq. - Local Tax Enabling Act - 53 P.S. § 6924.501 et seq. - Earned Income Tax
Regulations: - 61 Pa. Code § 113 - Local withholding tax
PA Department of Revenue: - PSD Code Lookup Tool - Local Tax Information (REV-588) - https://www.revenue.pa.gov/
Forms: - REV-1728 - Employer Quarterly Reconciliation Return - PA-40 Schedule G - Resident Credit for Tax Paid to Other Jurisdictions
Tax Collectors: - Keystone Collections Group - https://keystonecollects.com/ - Jordan Tax Service - https://jordantax.com/ - Berkheimer Tax Administrator - https://www.hab-inc.com/ - Philadelphia Department of Revenue - https://www.phila.gov/ - Pittsburgh Department of Finance - https://pittsburghpa.gov/finance/
Resources: - Pennsylvania Municipal League - Pennsylvania School Boards Association - County tax assessment offices