PA Act 32 is a Pennsylvania law that standardizes the local earned income taxing system. It consolidates the process by creating new tax collection districts, standardizing forms and mandating employer withholding, which expanded statewide in 2012.
Under Act 32, employers must withhold the greater of two taxes assigned to each employee: a “resident” tax corresponding to where the employee lives, and a “non-resident” tax corresponding to where the employee works. Employers are required to collect a completed certificate of residency form from each employee and submit as an addendum to the Federal Employee's Withholding Allowance Certificate (Form W-4).
Beginning in 2012, a business with employment locations in more than one tax collection district may file and pay the total amount of income taxes withheld from employees in all work locations to the tax collector for the district where the employer's payroll operations is located. Pennsylvania employers can generate the new Pennsylvania PSD Tax File from within Sage HRMS Payroll using Sage Payroll Tax Forms and eFiling by Aatrix.
Setting Up Political Subdivision (PSD) Codes
Act 32 requires employers to begin reporting local earned income taxes using Political Subdivision (PSD) codes. Your Sage HRMS Payroll tax tables includes all applicable PSD codes for Pennsylvania local taxes, as well as a Political Subdivision Code field on the Local/Other Custom Taxes page.
Pennsylvania employers must use the Local/Other Custom Taxes window to update the PSD codes, as described below:
- Select Setup > Payroll.
- In the section Earnings/Deductions/Taxes, select Local/Other Tax Codes.
- Click the Install Repository button to update the local tax repository.
- Use the Tax lookup field at the top of the page to find your current Pennsylvania local tax, select it, and then click the Update button. Doing so updates the tax with the information from the repository table. The Political Subdivision Code field populates when applicable.
Assigning PA Local Taxes to Employees
When assigning taxes to employees, Pennsylvania employers must assign both the Resident and Non-Resident tax specified on the Employee Certificate of Residence form. When payroll is calculated, taxes will be withheld for each Pennsylvania employee at the higher of the two tax rates specified.
All Pennsylvania taxes withheld are recorded in table UTPAPSD, which enables employers to file monthly or quarterly reports as required by PA Act 32.
Adjusting Transactions
Employers who have processed payrolls for a previous quarter and need to adjust a transaction for an employee with Pennsylvania local codes assigned must include both the Resident and Non-Resident tax code in Transaction History when processing the adjustment to allow for proper reporting.
Learn more about Adjusting Transactions using Transaction History.
Executing the new Pennsylvania PSD Tax File (report)
The Pennsylvania PSD Tax file is available from within the State Tax Filing function in Sage HRMS Payroll and can be filed with Sage Payroll Tax Forms and eFiling by Aatrix. The file is located under U.S. Payroll > Government Reports > State Tax Filing > PA - Pennsylvania > PA Act 32 Report Selection. The function does not produce a printed report on paper.
When you select the file, the interface with Sage Payroll Tax Forms and eFiling by Aatrix triggers a Forms Update (if the form/file is not current), then opens the Sage Payroll Tax Forms and eFiling by Aatrix window where you can confirm details and make adjustments before submitting the files.