As a small business owner, processing payroll is just one item on your to-do list, but ever-changing regulations and tax code updates can make it the most time-consuming task in a given week. These tax updates occur at the federal, state, and local levels, and depending on where your business is based and where your employees live, some small businesses have it tougher than others. We’re starting this monthly series to focus on state-specific tax considerations, to help you keep up with what’s changing around you.
Last month, we covered New York, and this month, the spotlight turns to Pennsylvania (PA). While this is by no means a comprehensive list of Pennsylvania tax and payroll regulations, we are highlighting a few key things to know.
Go Local! (Unless You’re in Philly)
Depending on who you ask, the federal tax code is anywhere from 2,600 to over 70,000 pages long. That’s overwhelming on its own, even before you get into state and local taxes.
And Pennsylvania really ups the ante when it comes to tax complexity by adding over 5,000 local tax jurisdictions into the mix.
As an employer or worker in PA, you should note that Pennsylvania Local Services Taxes (PA LST) do not apply to Philadelphia, so be sure to withhold the resident or non-resident rate for employees who live and/or work in Philadelphia.
Note: If you own a small business in Pennsylvania, you’ll want to ensure that your payroll provider supports PA LST processing.
Beyond the City of Brotherly Love: Reciprocal Taxes
Unlike the Empire State, the Keystone State does have agreements in place with surrounding states when it comes to state income taxes. In case you need it, here’s a quick refresher on what state tax reciprocity is. The simplest explanation of Pennsylvania’s reciprocity is this: if you or your employees work in Pennsylvania but live in Indiana, Maryland, New Jersey, Ohio, Virginia, or West Virginia (or vice versa), you will pay income taxes only in the state of residency.
Note: In order to take advantage of tax reciprocity for yourself and/or your employees, make sure you have non-resident certificates on file as needed.
The Last Payday
When it comes time to say goodbye, whether an employee is terminated or quits, Pennsylvania requires that an employer pay the separating employee their final paycheck by the next scheduled payday.
Bottom Line
As you can see from our coverage of Pennsylvania, every state differs when it comes to payroll and taxes. So whether your business is in the Keystone State, the Golden State, or any state in between, you want to be sure that you are keeping up with tax and regulatory changes at the federal, state, and local levels. This can be hard to do on your own, but there are resources to help.
If you’re considering outsourcing payroll to help cut down on administrative tasks and mitigate tax risk, here are some things to consider in selecting a provider:
- Do they have your back when it comes to payroll taxes?
- How long is their payroll processing time?
- Do they offer extended support hours on evenings and weekends?
We’ll be back July 25th with a spotlight on Washington taxes.
This website contains articles posted for informational and educational value. SurePayroll is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, SurePayroll. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. If you require legal or accounting advice or need other professional assistance, you should always consult your licensed attorney, accountant or other tax professional to discuss your particular facts, circumstances and business needs.
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