What If a Business Fails to Register and Withhold Local Pennsylvania Taxes?

If a business fails to register with the appropriate tax jurisdictions and withhold the necessary taxes, the employer may be liable for fines, penalties and interest. In addition, failure to withhold the tax makes the employee liable for under-withholding penalties if the tax was not paid on a timely basis.

Act 511 contains a provision for a $500 fine for each offense for failure to withhold the EIT from payroll. In addition, a penalty of a half percent of the unpaid tax may be assessed, and interest at the rate of 6% per annum can be assessed for each month or partial month in which the tax remains unpaid.

To give you an idea of what impact this can have, let’s consider an example. Suppose you have an employee who works in Lower Allen Township, is paid $35,000 a year paid bi-weekly, and your business fails to withhold the 1% EIT for the entire calendar year. The fine for failure to withhold would be $13,000 (or 26 payrolls times $500). The penalty on the unpaid tax would be only $1.75 (0.5% of $350) and the interest on the penalty and unpaid tax would not appear to be significant. But if you multiply the fines by the number of employees that are subject to the tax, the fines alone, and the interest on the fines, can be quite significant.

The City of Pittsburgh will impose a $500 fine for each offense, and penalty and interest will be assessed as defined by current ordinance.

The City of Philadelphia imposes a penalty of 10% of the unpaid tax plus interest as defined by current ordinance.

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