Pennsylvania Payroll Tax Deductions

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Pennsylvania is one of the many states that require employers to withhold state income tax from employees’ paychecks. The Pennsylvania Department of Revenue oversees state income tax withholding laws. Pennsylvania employers must also withhold federal taxes according to the Internal Revenue Service’s guidelines.

Federal Criteria

Pennsylvania employers are required to withhold federal income tax, Medicare tax and Social Security tax from employee wages. The employer withholds federal income tax according to the employee’s Form W-4 data, such as filing status, allowances and any additional taxes to be withheld, and the IRS Circular E’s withholding tax tables relevant to the employee’s pay period, filing status, allowances and wages. The employer calculates Social Security tax at 4.2 percent of the employee’s gross income, up to $106,800 for the year, and Medicare tax at 1.45 percent of all gross income.

State Withholding

The Pennsylvania Department of Revenue requires employers to withhold Pennsylvania income tax from resident employees who work within or outside of Pennsylvania. Employers should also withhold income tax from nonresident employees who work within Pennsylvania, except those who live in Indiana, New Jersey, Maryland, Ohio, West Virginia and Virginia. In this case, it withholds income tax for the state in which the employee resides and pays the tax to the home state. This procedure is known as a “reciprocal agreement.” If this arrangement exists, the respective employee should complete Form REV-420, Employee’s Statement of Nonresidence in Pennsylvania and Authorization to Withhold Other States’ Income Tax.

State Calculation

Many states require employers to give employees a state withholding allowance certificate, similar to the federal Form W-4, to help determine state income tax withholding. The employee includes her allowances on the form and the employer uses the state withholding tax tables to figure the withholding. Pennsylvania does not have a withholding allowance form. Instead, it requires employers to withhold at the flat percentage of 3.07 percent of taxable wages, as of tax year 2011.

Considerations

The employer pays state withholding taxes to the Pennsylvania Department of Revenue according to the schedule the department mandates, typically quarterly, monthly, semimonthly or semiweekly. Most employers pay federal withholding taxes to the IRS on semiweekly or monthly basis. Pennsylvania employers that withhold state income tax are required to file quarterly tax returns with the state revenue agency. Most employers file quarterly or annual tax returns with the IRS. Pennsylvania employees are entitled to a pay stub each time they are paid. The pay stub should include the employee’s deductions.

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