Pennsylvania Act 32 of 2008 (“Act 32”) , signed into law by Governor Edward G. Rendell on July 2, 2008, consolidates the collection of local income taxes and imposes several new withholding requirements on Pennsylvania employers. Beginning January 1, 2012, Pennsylvania employers will be required to obtain a certificate of residency form from all employees and withhold local earned income taxes from their paychecks.
A small number of taxing jurisdictions have opted for early implementation of Act 32 requirements, making the changes effective beginning January 1, 2011. An official announcement of early implementation jurisdictions has not been made available as of the date of this article.
Under Act 32, employers are required to withhold the greater of the employee’s resident tax or the nonresident tax of the jurisdiction in which the workplace is located and remit the withheld taxes to the jurisdiction where the employers’ workplace is located.
Act 32 includes a provision known as the Wal-Mart exception. This provision provides that if an employer has more than one place of employment in more than one tax collection district, the employer may file the return and pay the total amount of income taxes deducted from employees in all work locations to the tax officer for either the tax collection district in which the employer's payroll operations are located or as determined by the Pennsylvania Department of Revenue.
In order to comply with the requirements of Act 32, employers must obtain a certificate of residency form from each employee, which shall be an addendum to the Federal Employee’s Withholding Allowance Certificate (Form W-4). Any employee who changes their address will be required to complete a new certificate of residency form. A sample certificate of residency form can be found at the Department of Community and Economic Development’s website here.
Additionally, employers will need to update their payroll systems to utilize new political subdivision and tax collection district codes prescribed by the Pennsylvania Department of Community and Economic Development (DCED).
For more information, contact Eric Wright (firstname.lastname@example.org) or Timothy Adams (email@example.com).
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.