All About PA Local Tax Responsibilities
As a Pennsylvania resident, there are various local taxes that you may be required to file. For workers inside and outside, Allegheny County, residents of the state will generally be required to file two local income taxes: one tax for their personal municipalities (cities/townships/boroughs) and, unless you live in Pittsburgh, a second tax for their county. Pa. resident taxes and city/municipality taxes are referred to in Pennsylvania as the "earned income tax" ("EIT") or sometimes "local tax" depending on which municipality you are filing with in Pennsylvania.
Each Pennsylvania municipality sets its own rates, rules, and forms for these taxes, but they almost always will be based on the amount of qualifying income the taxpayer earns during the taxable year. Taxpayers who exceed the local income tax filing threshold generally must file a return with their home municipality/region, even if they work elsewhere. Similar rules apply for taxpayers of outside Pennsylvania who only work in the state, provided that a tax reciprocity agreement does not cover them.
In Allegheny County , municipal local taxes are generally based on a flat rate of 1% of qualifying earned income (i.e., one’s pay, salary, or commissions). Residents of the following counties will also be required to file a local tax return, and each county has a slightly different earned income tax return and payment schedule.
County Individual Income Tax Deadlines
Allegheny August 2nd A second local tax eventually will be implemented for Allegheny County in 2024, called the Workforce Development and Retention Tax.
The City of Pittsburg, in addition to requiring the filing of a local earned income tax return with the Allegheny County Department of Treasury, also requires that local income earners file a "BPT" local business tax return with their city by April 15th of every year. The BPT is a tax on individuals who solely receive unincorporated business income, gain, and other kinds of income. For those that do not solely receive business income but also operate a business in the city, local business income must be reported in the BPT, while other income is reported in the local earned income tax return.
Penalties for Not Filing Your Local Taxes
If you are required to file a tax return in Pennsylvania and you do not file your return you can expect to pay a penalty of up to $500. A longer jail sentence or fine may result from wilfully failing to file a tax return. The Local Tax Enabling Law, which controls municipal taxes, is Pennsylvania law. The Pennsylvania Department of Community and Economic Development has set forth several imposition of penalties forms to be used by municipalities. Of course, the home rule charter generates its own set of penalties and interest charges, and municipalities with home rule charters are encouraged to make use of district justices to collect their municipal taxes. Under the notice requirements of the Local Tax Enabling Law, for timely payment of taxes, if a municipality fails to send the taxpayer notice of the imposition of the tax, the municipality will be required to accept payment up until the last day of the taxing period without imposition of a penalty or interest charge.
Paying PA Local Taxes
The process for filing local taxes entails two steps: filing a return and submitting payment. In Pennsylvania, the deadline to file is five months after the end of the year, although the due date is dependent upon the specific local taxing jurisdiction. If additional time is needed for a filing or payment, the taxpayer may apply for an extension to file with the local taxing jurisdiction.
In Pennsylvania, individual local tax returns are filed with the municipality of residence. Residents must file with their municipality of residence regardless of whether the municipality has a local income tax. Local returns must be filed on forms used by the local taxing jurisdiction, and postage must be paid by the taxpayer. In the absence of a local return, the taxpayer should file a return with the tax collector of the municipality in which he is employed.
Employers will withhold local tax based on the municipality stated on the withholding certificate (Form W-4). If the employer does not withhold, the employee must make estimated payments. If the employer and employee do not pay the correct amount, the other must make up the difference. If neither pays the correct amount, the county must collect it through a property tax lien.
Common Filing Errors and How to Prevent Them
Common mistakes when filing local taxes
While deciding to be responsible and pay taxes is wise, executing this responsibility… not so much.
Below are some common errors that taxpayers make when filing local taxes in Pennsylvania and tips to help you avoid these mistakes.
Not Understanding the ID Card System
In Pennsylvania, an ID card is used only for non-resident school district employees who work within but do not live within a specific school district. This ID card is a second form of identification used in addition to a photo ID.
The ID card system requires your employer to file verified information with the state regarding your gross wages. This information must be filed bi-annually or quarterly (if the total gross income exceeds $100,000 per quarter). After verified information is filed, the ID card is sent to the employee if there is at least $250 withholding from the employee’s wages, due to the local earned income tax .
The ID card is valid for up to two years. Spouses may receive the same ID card, but only if they work in the same district and the name and Social Security number of each person is included on the ID card record filed with the state.
Using the Wrong ID Card
Because the ID card is issued by the state and not by the school district where your employer files tax, it is necessary to take the card to your municipality or school district to get your wage tax withheld at the right rate. If you have multiple employers, you must get an ID card from each one.
You should only use an ID card once you are certain a tax has been withheld by an employer from your wages. Generally, if an employer withheld tax for the employee named on the ID card, the employer must give the ID card to the employee. If an employer does not use your ID card, the employer must require the employee to provide a W-2 form or a withholding statement for that person.
Here’s What to Do If You Forgot to File
If you have missed the deadline for remitting your local taxes, here are some steps you should take:
1. You should pay whatever your balance of municipal taxes owes to your local taxing authority. This step is important to be in compliance with the law regardless of any penalties that may have been assessed to you regarding your late payment. Understanding that you owe these taxes, the Tax Code allows a taxpayer to pay their owed local taxes even if they have missed the date for when such taxes were due. Failure to remit payments by the appropriate date will only subject you to penalties.
2. You should get into contact with your local tax authorities as soon as possible to explain the situation. In the best case scenario, the authorities may waive penalties for your lack of timely payment due to a good reason. There are several reasons why you may not have been able to make the payment by the appropriate date, including: unemployment, illness, or other dire life events. It is important to note that there is only a three year statute of limitation applicable to the imposition of penalties for a failure to timely pay.
If you would like to further discuss these issues, please contact any of my colleagues.
When to Get Professional Assistance for Local Tax Matters
In situations where a taxpayer has failed to file local taxes and is facing penalties, seeking the help of an experienced tax attorney is highly advisable. Local tax complexities make this area especially difficult to navigate for those who try to represent themselves in audit and collection matters.
A lawyer with experience in this area will be able to review tax records, confirm compliance with filing and payment obligations, and explore any exemptions or deductions available under applicable local ordinances.
Ideally, issues with local municipalities will be resolved swiftly and amicably . In most cases, a simple request to waive penalties can be made, along with a promise to file all future returns as required by law.
In some cases, however, a taxpayer may face a much more difficult situation in which an extended period of noncompliance has resulted in an outstanding tax balance or severe penalties. Fortunately, even if it does not seem likely that the matter will be resolved in the taxpayer’s favor, Wage Garnishments and other negative consequences can often be avoided if the taxpayer takes the necessary steps to establish that they are committed to moving forward in full compliance with Pennsylvania’s local tax ordinance.