Asidefrom Federal and State taxes, Pennsylvaniaemployers are required to withholdlocal taxes such as Earned Income Tax (EIT) and Local Service Tax (LST).
Hereare some of the things users can check to verify if the calculation of thepayroll module is correct for both taxes:
1.First, ensure the correct combinations are selected on the Jurisdictions tab of both Employeeand Workplace records. Users canrefer to the topic Guide for Jurisdictions set-up of employees whowork in Pennsylvaniaformore detailed steps in setting-up workplace jurisdictions.
2.Get the appropriate tax rates and identify the correct tax items by running amunicipal statistics report from PA website:
- Click Find YourWithholding Rates by Address link
- Enter the StreetAddress, City and Zip Code of the employee's home address under Enter yourHome Address section and thenenter the workplace address under Enter yourWork Location Address section
3.Correct combination ofLocal and School District appears on the report including the rates for EIT andLST as well as the assigned tax collectors.
4. Create a dummy paycheck for the employee. Makesure the Pay Frequency of the employee is set to Annually. Userscan change this by going to Employee record, Payroll tab > PayFrequency field.
5. Open the dummy paycheck and go to Summary Tab.Compare the payroll tax items and tax calculations as follows:
Earned Income Tax (EIT)
a. Payroll Tax Item
- The enactment of PA Act 32 of 2008 requires remittance of EIT to a single local collector or Tax Officerwhich is the work location's tax collector.
- Because of this, the taxitem to be used in withholding EIT is always the same with the Localselected on the Jurisdictions tab of the Workplace recordsuffixed with "EIT".
- The same tax item appears on dummy paycheck and onthe Employee record > Payroll tab > Taxes sub tab.
b. Tax Rate
- The enactment of PA Act 32 of 2008 requiresemployers to withhold the higher between the work and resident rate.
- Base from the municipal statistics report,identify which of resident (Home) and workplace (Work) rates are higher andmultiply it with the taxed wage base portion of the taxable earnings from thedummy paycheck.
- The product is the same amount on the dummypaycheck.
Local Service Tax(LST)
a. Payroll Tax Item
- Check the municipal statistics report if bothlocal and school district under work Jurisdiction is associated with LST rates.
- If both are associated with LST rates, bothPayroll tax items are used in withholding LST. The tax items are suffixed with"LST" in the module.
- On the other hand, if only one is associated withLST rate, only that payroll item withholds LST for the employee.
- Note that even only one of the local or schooldistrict is associated with LST rates, both tax items appears on the Employeerecord > Payroll tab > Taxes sub tab.
b. Tax Rate
- The rate is calculated by combining the schooldistrict and municipality rates and it is pro-rated based on the number ofpayroll periods established by an employer for a calendar year.
- As the Pay Frequency of the employee fromthe dummy paycheck is set to Annually, the LST rates from the municipalstatistics report is be the same amount of LST taxes withheld on the dummypaycheck.
NOTE: Dummy paycheck is fortroubleshooting purposes only. User isrecommended to delete after testing.
Disclaimer: This article is writtenwith the undertaking that tax rules and laws are constantly changing and isintended for informational purposes only. We have no control over the websitesprovided above.
We are not providing tax consulting or legal advice.
Forthe most current information or if you have any questions concerning yoursituation or information provided, please contact your accountant/taxconsultant, call the tax agency or visit the government official website