Why Pennsylvania Local Earned Income Tax Is the Hardest Local Payroll Regime in the US
Pennsylvania local earned income tax is the most complex local payroll tax regime in the country, full stop. The state has over 2,500 local jurisdictions, two major private tax collectors plus several regional ones, a six-digit PSD code system that drives every paycheck, and a withholding rule that compares resident and work-location rates on every employee. At BusAcTa Advisors, we prepare PA payroll filings every quarter behind US CPA partners, and the volume of preventable errors we see across your firm's PA-resident clients is higher than for any other state.
Here's the honest version. Pennsylvania consolidated 560+ pre-Act 32 collectors down to 69 Tax Collection Districts effective January 1, 2012, then required every employer to identify each employee by a Resident PSD code and a Work Location PSD code on every W-2 and quarterly return. Miss either code, miss the rate comparison, or miss the collector assignment, and your client lands in a penalty notice within a quarter or two of your team taking over the file. This guide walks through the five rules your firm needs to handle PA EIT local tax filings cleanly.
This is general information about Pennsylvania's local earned income tax, not tax advice for any specific filer. Always confirm current PSD codes and rates against the Pennsylvania Department of Community and Economic Development before your firm signs off.
The Act 32 Foundation: 69 TCDs and 2,500+ Jurisdictions
Answer first: Act 32 Pennsylvania (Act 32 of 2008, effective January 1, 2012) reorganized Pennsylvania local earned income tax collection into 69 Tax Collection Districts, generally aligned to counties. Each TCD has one designated tax officer. That tax officer collects EIT for every municipality and school district inside the TCD. Filing one return per TCD replaced your old patchwork of 560+ local collectors.
The Pennsylvania municipal tax structure inside each TCD remains layered. Every Pennsylvania city, borough, township, and school district can levy its own EIT under the Local Tax Enabling Act. The combined municipal-plus-school-district rate typically falls between 1% and 3.93% for non-Philadelphia jurisdictions. Pittsburgh's rate, Allentown's rate, and a rural Bradford County township's rate are all set independently.
What that means for your firm: even with Act 32 consolidation, your client's quarterly remittance covers dozens or hundreds of jurisdictions if their workforce spans the state, and your team coordinates with the collector behind the scenes. The collector handles disbursement to each municipality and school district behind the scenes, but you still have to assign each employee correctly.
Rule 1: Get the PSD Code Right (Both of Them)
The PSD code lookup PA system is the single most error-prone input in Pennsylvania payroll. PSD codes are six-digit political subdivision codes maintained by the Pennsylvania DCED (Department of Community and Economic Development). The first two digits identify the TCD (essentially the county). The remaining four identify the specific municipality and school district combination.
Every employee in PA needs two PSD codes:
Resident PSD code: Based on the employee's home address. Determines the resident EIT rate.
Work Location PSD code: Based on the employee's primary work address (or home address for remote workers). Determines the non-resident EIT rate.
Your firm's clients should require new hires to complete a Residency Certification Form, which captures both PSD codes and the corresponding rates. Without it, your client (and your firm) is guessing. The DCED maintains a free address-based lookup at Municipal Statistics, and any address change (a move across a school district line, even within the same county) requires re-running the lookup.
The first two digits of a PSD code identify the TCD. A code starting with 22 is Philadelphia (which operates outside Act 32, so it's an outlier). A code starting with 02 is Allegheny County. Knowing the prefix lets your team sanity-check W-2 entries against the employee's actual location.
How often does your firm audit PSD codes against employee addresses on an annual basis? It's a 30-minute exercise that catches the majority of withholding errors before they accumulate into a year of misallocated tax.
Rule 2: Always Apply the Higher-of Withholding Rule
Once your client has both PSD codes for an employee, the higher-of withholding rule is non-negotiable. Pennsylvania employers must withhold the higher of:
The Resident PSD's total resident EIT rate, OR
The Work Location PSD's non-resident EIT rate
The tax your client withholds at the higher rate gets remitted to the employee's resident TCD collector, which then distributes the appropriate portions to the resident's municipality and school district. The work location municipality your firm might expect to receive funds gets nothing from a PA-resident employee under this rule.
Example: an employee lives in a township with a 1% resident EIT rate and works in Pittsburgh with a 3% non-resident rate. The employer withholds 3% (the higher rate) and remits to the resident TCD's collector. The resident's 1% goes to the home jurisdiction; the additional 2% gets credited but generally remains with the resident's collector, not Pittsburgh.
The dual-rate higher-of withholding rule is the most common error CPA firms inherit when taking over a PA payroll client. Many out-of-state CPA firms assume Pennsylvania works like New York or Ohio (where work location drives tax) and they miss the higher-of comparison entirely. Has your firm reviewed the withholding rate on every PA employee against both PSD codes since onboarding?
Rule 3: Know Your Collector (Berkheimer, Keystone, and Others)
Each Pennsylvania Tax Collection District (of the 69 TCDs total) designates a single tax officer to collect EIT for the district. Two private firms dominate: Berkheimer Tax Administrator (officially HAB) and Keystone Collections Group. Together they cover the majority of Pennsylvania municipalities.
Rough geographic split:
Berkheimer: Most southeast and central PA TCDs, including Bucks, Chester, and Montgomery counties.
Keystone Collections Group: Most western and northeast PA TCDs, including a substantial share of Allegheny County jurisdictions.
Other collectors: Jordan Tax Service and several regional county-based bureaus handle specific TCDs.
The Berkheimer Keystone EIT split matters because each collector has its own filing portal, its own quarterly return format, and its own payment workflows. Your firm cannot file a Keystone TCD return through the Berkheimer portal, or vice versa. A client with worksites across both collectors files at least two quarterly returns by default.
The DCED maintains the authoritative directory linking each TCD to its assigned collector. Your team should confirm collector assignment at onboarding for every PA client with a worksite in a new TCD.
Rule 4: Multi-Site Employers Should Consider the Statewide Filer Election
For your firm's larger PA clients with multi-site employer EIT exposure across multiple TCDs, the Statewide Filer election can consolidate the entire remittance into one collector. Here's how the multi-employer remittance election works:
Pick one tax officer. The client selects one designated tax officer (typically the collector for one of their existing worksites) to handle all PA EIT remittance.
File Notice of Intention. The client must file a Notice of Intention with each TCD where they have a worksite at least one month before the first combined return.
Switch to monthly filing. Statewide Filers must file electronically and monthly, due 30 days after the end of each month. This is more frequent than the default quarterly cadence.
One return, one payment. Once active, the client files one combined monthly return with the designated tax officer. The collector distributes the funds to every relevant TCD.
The Statewide Filer election trades quarterly filing across multiple collectors for monthly filing through one. For a client with workers in six TCDs, that's a meaningful operational simplification, but your team needs to handle the monthly cadence and electronic-only requirement.
When does it pay off? Generally for your clients with three or more PA worksites in different TCDs. Below that, the quarterly default cadence is usually less work for your firm, even if it means filing with two collectors instead of one.
Rule 5: Philadelphia Operates Entirely Outside Act 32
Philadelphia has its own Earnings Tax (commonly called the Wage Tax) administered by the City of Philadelphia Revenue Department, completely separate from Act 32. Philadelphia's PSD code is 510101, but the rest of the system doesn't apply.
Key Philadelphia rules your firm should hold separately:
Rates differ for residents and non-residents. Recent rates are 3.75% for Philadelphia residents (regardless of where work is performed) and 3.44% for non-residents who work in Philadelphia. Both rates have stepped down slightly in recent years.
The higher-of rule doesn't apply. A PA-resident employee working in Philadelphia pays the Philadelphia non-resident wage tax, full stop, and can claim a partial credit on their resident TCD return for the Philadelphia tax paid.
Filing goes to Philadelphia, not Berkheimer or Keystone. Employers withholding Philadelphia wage tax file directly with the city, not through Act 32 collectors.
For any client with a Philadelphia worksite or Philadelphia-resident employees, your firm runs two parallel workflows: Act 32 EIT for everyone else, and Philadelphia Wage Tax for the Philadelphia population. Are you tracking these as separate compliance workstreams in your firm's client folder structure?
Filing Cadence, Penalties, and the Local Services Tax
Three operational items round out the PA EIT workflow your firm will run on every PA payroll client:
Quarterly employer filing. Form-driven, due 30 days after each calendar quarter. Berkheimer, Keystone, and Jordan all have their own portals, but the filing data and PSD-code requirements are uniform under Act 32.
Annual individual return. Your individual clients who are Pennsylvania residents file an annual local EIT return with their assigned collector by April 15. Most clients with correctly withheld W-2 income don't owe additional tax, but your firm should still prepare the return.
Penalties. Late EIT payments accrue penalties at 1% per month, up to a maximum of 15% of the unpaid tax, plus statutory interest. Late filing penalties stack on top.
The Local Services Tax (LST) is separate from the EIT, has its own collection mechanism, and isn't governed by Act 32. LST is a flat per-employee tax (often $52 per year, prorated per pay period) levied by many PA municipalities. Don't confuse the two on a quarterly remittance: they file to the same collector in many cases, but they're computed separately.
You can see how we slot PA payroll filings into your firm's broader compliance workflow on the how it works page. Our payroll processing service handles PA EIT quarterly returns and PSD-code maintenance, and our bookkeeping services team supports the underlying employee address audit your firm should run annually.
For the official DCED resources, current TCD-to-collector directory, and the address-based PSD code lookup, see the Pennsylvania DCED local income tax information page, which is the authoritative source for everything Act 32.
Getting Pennsylvania Local Earned Income Tax Right in 2026
Pennsylvania local earned income tax is the single most operationally demanding payroll tax regime your firm will run. The 2,500+ jurisdictions, dual PSD codes, higher-of withholding rule, and split between Berkheimer, Keystone, and the Philadelphia Wage Tax mean that there's no template solution. Your firm needs disciplined PSD code maintenance, an annual employee-address audit, and a clear collector map for every client.
If you want to see how we structure PA EIT preparation and PSD-code workflows for CPA partners' Keystone State client books, book a scoping call with BusAcTa Advisors, and we'll walk your reviewer through the operational process before you commit to anything.
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Written by
Viral Patel, CPAViral Patel, CPA, CA, is co-founder of BusAcTa, where he leads operations and quality assurance. With 10+ years in U.S. individual, corporate, and partnership tax, he built BusAcTa's delivery model around one standard: offshore work that holds up to the same review a domestic senior would apply. He holds credentials in both the U.S. (CPA) and India (CA).
