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Act 32: Be Prepared for New Payroll Requirements in 2012
By Joseph G. Bevevino, CPA
 If your organization manages its own payroll process, you need to know
what your and your employees’ new earned income tax obligations will be
in the new year.
Reforms to Pennsylvania’s Earned Income Tax (EIT) collection system will affect every business taxpayer and may bring some additional revenue to local school districts and municipalities. Employers will no longer have to remit taxes to multiple tax collectors, but the consolidation means administrative changes that can be costly and burdensome without proper planning. The reforms, ushered in by Act 32, will take effect Jan. 1, 2012. This fall, employers should take action to prepare for the change and avoid penalties.
Act 32, signed into law in 2008, streamlines tax collection by using standardized forms and definitions and consolidating EIT tax collectors – from 560 to no more than 69. Other details of Act 32 include anticipated uniform withholding, remittance, and distribution processes.
| QuickBooks Users Face Technical Roadblocks in Implementing Act 32 Changes |
Organizations using QuickBooks to manage their own payroll process face a technical challenge when attempting to track, record and report the Act 32 political subdivision codes (PSD) in their system. Cottrill Arbutina has devised a proprietary work-around to these issues until such time as Intuit changes the program accordingly.
Users may want to use the “Defined Field” feature in employees’ files to track the PSD codes. But in running the report,
that field shows blank because the information is not on the paycheck. As a result, only Cottrill Arbutina’s method of tracking the information is viable. For details, contact Laura Scala at 724.683.3413 or at lscala@cottrillarbutina.com |
Pennsylvania businesses should do the following:
- Identify the tax collection district (TCD) and the appointed tax officer where the business is located.
- Have every employee complete a certificate of residency to identify the correct jurisdiction and political subdivision (PSD) where each employee resides. If not already registered for EIT withholding, determine whether there is any EIT where the business is located or where any employee lives. If so, the employer must register with the tax officer within 15 days of becoming subject to Act 32.
- For each employee, determine the nonresident EIT rate for the business jurisdiction PSD and the employee’s resident EIT rate.
- For each employee, identify the higher of the two EIT rates above, and withhold the higher rate.
- Single-location businesses must file quarterly a detail of all employees, including their exact home address, their earnings, and the EIT withheld for the quarter. The collected taxes must be remitted with this filing.
- Businesses located in more than one TCD can elect combined filing with one TCD, but must file and remit electronically on a monthly basis.
- Prepare annual reconciliation filings with W-2s.
Employers who willfully fail to collect or truthfully account for and remit income taxes, will be committing a misdemeanor. If convicted, they may be fined up to $25,000 and/or be subject to imprisonment of up to two years, or both.
Business owners in Pennsylvania should work closely with their payroll and accounting professionals to comply with these new regulations. It is important to immediately identify and register with the appropriate tax collection district and begin collecting the employee certificates of residency this fall.
To learn more about the benefits and risks to your business, contact Joseph Bevevino at jbevevino@cottrillarbutina.com.
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