Starting January 1, 2012, Act 32 brings many changes for employers with a place of business within the Commonwealth who employ one or more persons with regard to withholding local taxes. Act 32 was enacted in 2008 with the objective of consolidating the collection of the local earned income tax (EIT) on a county-wide basis. The new law mandates EIT withholding even if the employer is located in a jurisdiction with no EIT. More importantly, employers are required to withhold tax at the higher of either: 1) the nonresident tax rate that is imposed by the jurisdiction where the employer is located or 2) the resident EIT rate where the employee resides. Pennsylvania Act 32 affects all PA employees and every PA employer with employees. It also affects self-employed individuals filing a PA earned income tax return with a local tax jurisdiction.

What you need to do before 2012:

• Make sure you are registered with your county's designated tax collector. Most employers should have received a mailing from their tax collector regarding their registration.
  
  
• Have employees complete and sign a "Residency Certification" form and return to you. This form identifies the tax jurisdictions where the employee lives and works.
  
  
• Look up the employee's resident tax rate, compare it to the employer's jurisdiction nonresident tax rate and withhold at the higher of the two rates in 2012.
  
  
• If you are located in more than one tax collection district, determine how you may file your returns.
  

If you have any questions about Act 32 or any other employment or labor law issue, please contact Angela Thomas or Glenn Davis at Latsha Davis & McKenna, P.C. (717-620-2424)  

Special Update - 4.2% Social Security Wage Approved

The 4.2 percent rate for the employee portion of the Social Security tax will extend into the first two months of 2012 after President Obama signed modified legislation (H.R. 3765). Based on the law as signed, wages earned in the first two months of 2012 are to be subject to the 4.2 percent Old Age, Survivor, and Disability Insurance withholding rate up to the full Social Security wage base of $110,100, according to a spokesperson for Rep. Dave Camp (R-Mich.). The House and Senate passed the measure without a formal vote by unanimous consent. As part of the agreement that led to passage of the bill, Senate Majority Leader Harry Reid (D-Nev.) named four senators to a House-Senate conference committee to negotiate a package that would extend the payroll tax cut through the end of 2012.

If Congress does not negotiate a yearlong extension of the 4.2 percent rate, employers will not need to correct the amounts withheld for January and February 2012 to accommodate a 6.2 percent rate, the spokesperson said. Under this scenario, "if an employee's wages during the first two months of 2012 exceed $18,350 (two-twelfths of the wage base of $110,100), an amount equal to 2 percent of those excess wages would ultimately be recaptured on the worker's individual tax return for 2012," the spokesperson said.

This information was provided by Lyceum Business Services (972-423-2373 or toll free 866-459-2386)