Pennsylvania Wage Tax Law

State Income Tax

Pennsylvania employers are required to withhold state income tax from resident and nonresident employees' wages. Pennsylvania has a reciprocity agreement with the states of Indiana, Ohio, Maryland, New Jersey, Virginia and West Virginia -- if the employee lives in one of these states, the employer does not withhold Pennsylvania income tax. Instead it withholds income tax at the employee's home state tax rate, if applicable. If the employee lives in a reciprocal state, she must complete Form REV-420, Employee Statement of Non-Residence and Authorization to Withhold Other State's Income Tax. The employer calculates Pennsylvania tax at a flat percentage -- 3.07 percent as of 2011 -- of the employee's gross earnings.

The IRS requires employers to withhold Medicare tax, Social Security tax and federal income tax. The employer withholds Medicare tax at 1.45 percent of all gross income, and Social Security tax at 4.2 percent of gross income, up to $106,800 yearly. It determines federal income tax via the employee's W-4 form and the IRS Circular E's withholding tax tables. Specifically, it uses the filing status and allowances shown on the employee's W-4 and the tax table relevant to his filing status, allowances, wages and pay period to compute the withholding.

Some Pennsylvania governments charge city and local income tax. Employers must withhold city and local services taxes from employees who work within the taxing jurisdiction. The city income tax rate depends on whether the employee is a resident or nonresident. Local income tax is generally withheld at a flat amount. Employers should contact the Pennsylvania Department of Community and Economic Development for taxing jurisdictions, withholding rates and payment guidelines.

The employer should consult IRS Circular E for its federal tax payment and filing guidelines. The employer typically pays federal withholding to the IRS semiweekly or monthly and files quarterly tax returns. It pays state income tax withholding quarterly, monthly, semimonthly or semiweekly, and files quarterly reconciliation returns with the Pennsylvania Department of Revenue. Pennsylvania employees are entitled to a pay stub showing wages earned and deductions for each pay period.