Pennsylvania Local Earned Income Tax

As part of the payroll calculation process, Vertex compares the Resident Income Tax Rate (city + school) and Nonresident Income Tax Rate (city). It uses the higher rate for calculating local taxes. In cases where the total rate is the same, the payroll process withholds the resident tax.

The following info outlines how to configure the processing of this tax.

For these taxes	This is what you need to know
Pennsylvania local earned income tax	To configure this tax: Ensure your tax tables have the latest Vertex tax info. Configure your locations with the political subdivision (PSD) codes. Configure your organizations for Pennsylvania local tax withholding. Configure your Pennsylvania employee tax cards. If you're registered as a combined filer for Pennsylvania Act 32 taxes, provide your Tax Collection District (TCD) combined-filing proxy. For further info, see Pennsylvania Local Earned Income Tax Configuration below.
Enable Pennsylvania and Maryland reciprocity	To enable the reciprocity agreements between Pennsylvania and Maryland, you need to configure your organizations and employee tax cards appropriately. For further info, see Pennsylvania and Maryland Reciprocity below.
Philadelphia tax withholding	The payroll process automatically withholds city taxes for people living or working in Philadelphia. However, you must perform some configuration for employees who receive tips. For further info, see Philadelphia Tax Withholding below.
Pennsylvania local tax tagging and effective dating	You can't tag earnings for Pennsylvania PSD codes other than the one already on the card. Instead, to ensure proper taxation, it uses the Residency Certificate's PSD code as of the pay period end date.
Balance adjustments for Pennsylvania local taxes	If balance adjustments are required for taxes that are subject to Pennsylvania Act 32 reporting, you must perform each adjustment individually for each type of balance (city, school, and local). There are multiple balances that support Pennsylvania Act 32, such as city withheld and local withheld. For further info, see the following on My Oracle Support. Oracle Cloud Human Capital Management for United States: Balance Adjustments (1600728.1) Oracle Cloud Human Capital Management for United States: Balance Initialization (1912298.1)
Pennsylvania resident tax for out-of-state work locations	You need to make sure you configure your organizations to calculate Pennsylvania resident taxes for out-of-state workers. For further info, see Pennsylvania Resident Tax for Out-of-State Work Locations below.
Temporary work assignments in Pennsylvania	For employees who experience a change in work assignment of 3 or more months: At the beginning of the temporary assignment, set the work PSD code to the temporary assignment for the time period needed. When the assignment is complete, change it back. Work assignments that last fewer than 3 months don't require any configuration.

Note:

For further info, see the video tutorials on the Information Center for Cloud Human Capital Management - United States. From the Welcome Page, navigate to Video Tutorials.

Pennsylvania Local Earned Income Taxes

To enable Pennsylvania local earned income tax calculation:

1. Load the PSD codes through the Load Payroll Tax Information for US flow. This flow makes the PSD codes available for use during tax calculations.

   For further info, see Load Payroll Tax Info for the US in the Help Center.

   Note:

   Pennsylvania PSD codes, school districts, and townships are stored in a data table that's not accessible through the Geographies task. You can load this data only through the Load Payroll Tax Information for US process. You can't otherwise change the values.

2. Set the PSD code for each Pennsylvania location through the Locations task.

3. Configure the withholding of Pennsylvania local taxes for any employees working out-of-state.

   For further info, see Configure Organization Calculation Cards for the US in the Help Center.

4. Set the PSD codes on each Pennsylvania employees' Residency Certificate.

   For new Pennsylvania employees, the employee tax card inherits both the work and resident PSD codes from their work location and home address. The default resident PSD code might not be accurate. This is because Pennsylvania addresses often have varying taxation districts.

   To ensure proper taxation:

   1. Obtain the correct PSD code and school district for the employee's resident address from the PA Municipal Statistics website.

   2. Correct these entries on the employee's tax card.

   Here are some other situations where you must manually update the PSD codes on the employee's Residency Certificate.

   • The employee's work location has changed from a state other than Pennsylvania to Pennsylvania, and the employee resides in Pennsylvania. In this case, you must set the work PSD code.

   • The employee changes from one work Pennsylvania location to a different work Pennsylvania location. In this case, you must update the work PSD code.

   • When you change a person's Pennsylvania residential address.

   Note:

   Confirm that the PA Residency Certificate has the proper resident and work PSD codes and school districts anytime you make a location change to a Pennsylvania employee. Such as changes to the home address or work location.

   For further info, see Maintain Pennsylvania Local Taxes in the Help Center.

5. If you're registered as a combined filer for Pennsylvania Act 32 taxes, provide your Tax Collection District (TCD) combined-filing proxy.

   For further info, see Configuration Requirements for Third-Party Tax Filing in the Help Center.

Pennsylvania and Maryland Reciprocity

There's a reciprocity agreement for the local taxation of Maryland residents working in Pennsylvania. The following Pennsylvania tax collection districts (TCDs) allow an exemption from nonresident tax for Maryland residents.

Name	TCD Code
Adams	01
Berks	06
Cumberland	21
Franklin	28
Lancaster	36
York	67

For further info, see State Reciprocity Agreements in the Help Center.

Note:

There are exceptions. For further info, see the Vertex Payroll Tax Calculation Guide for the United States. The MD Exempt column in the Pennsylvania Local Withholding Tax Rate Table identifies which local jurisdictions allow an exemption from nonresident tax for Maryland residents.

These states' reciprocity agreements address these scenarios.

For this scenario	This is what happens
Employees working in Maryland and living in Pennsylvania	Pennsylvania residents are liable for withholding at the rate in effect for the Maryland county in which they're employed, unless they live in either York or Adams counties. Pennsylvania residents can be subject to Maryland county tax if their locality imposes taxes on Maryland residents working in Pennsylvania. Pennsylvania residents aren't subject to Maryland state taxes. For proper withholding, ensure you have: Correctly set up the employee's Tax Withholding card in the Residency Certificate section of the tax card. For further info, see Pennsylvania Local Earned Income Tax Configuration above. Marked the person as Nonresident for Maryland on their Maryland Regional tax card.
Employees living in Maryland and working in Pennsylvania	Maryland residents aren't required to pay Pennsylvania local taxes if they work in any of the TCDs listed above. The payroll process doesn't withhold Pennsylvania local taxes where appropriate, as long as: You have the home political subdivision (PSD) code entered as 880000 on the employee tax card in Pennsylvania Residency Certificate. You have the work PSD code that pertains to one of the four TCDs entered on the employee tax card in Pennsylvania Residency Certificate. You have marked the person as Nonresident for Pennsylvania on their tax card. If the employees don't work in these TCDs, they're subject to Pennsylvania nonresident local taxation rates.

Philadelphia Tax Withholding

The payroll process automatically withholds Philadelphia local tax for employees living or working in Philadelphia. For employees living in Philadelphia, it withholds the resident rate. For employees working in Philadelphia but not living there, it withholds the nonresident rate if it's higher than their resident tax rate. No school district info is required.

For Philadelphia employees who receive tips, there are two additional balances:

• City Uncollected Tax Tip Wages Nonresident

• City Uncollected Tax Tip Wages Resident

These balances report wages from which no city tax was withheld. You must perform balance adjustments on these balances in order to populate the data for the tax extracts.

Pennsylvania Resident Tax for Out-of-State Work Locations

To withhold local taxes for Pennsylvania residents who work outside of Pennsylvania, you must configure your PSU or TRUs.

1. Use the Legal Reporting Unit Calculation Cards task from your implementation project to perform this at the TRU level.

   Use the Legal Entity Calculation Cards task to perform this at the PSU level.

   Settings you make at the TRU level override those at the PSU level.

2. Enter the effective as-of date.

3. In Calculation Card Overview, select Regional.

4. In Actions, select Create.

5. Select PA, and click OK.

6. In Calculation Components, select State Income Tax.

7. In State Income Tax: Details, select Enterable Calculation Values on Calculation Cards.

8. Click Create.

9. Select Calculate PA Resident Tax for Non-PA Work Location, and enter Yes as the value. Click OK.

10. Click Save and Close.