Update November 29, 2016: The Pennsylvania New Jersey tax reciprocity agreement will remain in effect after December 31. See the Pennsylvania Department of Revenue announcement for more details.
Employers in Pennsylvania are subject to some of the country’s most complex payroll tax laws. Pennsylvania is one of 43 states that have a state income tax and one of 14 states that have local taxes. In addition to withholding state and local income tax from employees’ wages, Pennsylvania employers must also comply with special tax rules.
For example, Pennsylvania is one of the few states that requires state unemployment tax withholding and does not fully follow federal law on pretax deductions. Pennsylvania has also established reciprocal agreements with six other states – which adds another layer of complexity to state withholding.
Here’s an overview of the unique withholding requirements in Pennsylvania and tips for remitting and reporting taxes.