The Pennsylvania Department of Community and Economic Development (DCED) estimates that under the old system, at least $100 million in local earned income tax revenues was lost annually to inefficiencies. The collection system was archaic, complex, and fragmented. Pennsylvania had 560 tax collectors, more than all other states combined. With the passage of Act 32 of 2008, that number is now 21. Small businesses must act now because the transition can be time consuming and administratively difficult.
Registration with a tax collector is required for employers. This applies to most employers within the Commonwealth who employ one or more persons for compensation. Each employer must have each of their employees complete a certificate of residency form. This form helps identify the political subdivision where an employee lives and works. One item companies will need to take into consideration is the potentially different tax rates of where the company is located and where the employee lives. The employer will withhold the tax from the employee's pay at the higher rate. Failure to comply could be costly, including imprisonment of up to two years and fines of up to $25,000.
Philadelphia, which does not fall under the new regulations, will not be required to alter its tax collection system. Allegheny County will be divided into four Tax Collection Districts (TCD), each with its own earned income tax collector. In all other counties, the TCD is determined by county lines and will have one designated tax collector. A few counties have opted for early adoption of these new rules - Chester, Lancaster, Lebanon, and Wyoming.
The Pennsylvania Institute of Certified Public Accountants (PICPA) worked to get Act 32 passed and continues to advocate for ease of transition into the new system. According to Cheri H. Freeh, CPA and PICPA president, "The PICPA has worked diligently on this process to help ensure that the tax revenues reach the municipalities and school districts where they rightfully belong." PICPA will continue to work with legislators and regulators to improve this process and the overall business climate in Pennsylvania. A number of PICPA members serve on state tax collection committees and are working with DCED to make sure Pennsylvania companies have the resources they need to follow the new regulations. PICPA had developed a brochure outlining the responsibilities of the employer and is also offering to have CPA speakers visit area businesses, chambers of commerce, and other business meetings to speak on the new Act 32 regulations. According to Freeh, "The best advice I can give is for the payroll and accounting professionals to sit down and plan for this change. They should identify and register with the appropriate tax collection district and begin collecting the employee residence verification forms now." You can find more resources at www.picpa.org/act32. For specific information on local tax rates and forms, go to DCED's website and search for Act 32.
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The Pennsylvania Institute of Certified Public Accountants is a professional association of more than 20,000 CPAs who work in public accounting, industry, government, and education. Founded in 1897, PICPA is the second-oldest state CPA organization in the United States. To find a member CPA in your area, visit our website at www.picpa.org and click on Find A CPA.
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