Compiled by Robert W. Ditmer,
CPP
How Can Employers Assist Employees Who Are Liable for the Tax But Who Are Not Subject to Withholding of the Tax?
Throughout this guide it has been emphasized that employers are not obligated to withhold the EIT from employees for the jurisdiction where they live. Doing so can become cumbersome for the employer and can actually create problems for the employee. But many employees may have an EIT obligation that is not withheld from their paychecks, so they are faced with paying quarterly estimated tax payments.
For instance, suppose the business is located in Ridley Park Borough, which does not impose the tax. In such a case, the employer is not obligated to withhold the tax at all, but you may (and probably would) have employees who live in municipalities that do impose the tax. If an employer were to withhold the tax for the municipalities where each employee lives, then the employer has to register with every different tax collector and submit a separate quarterly report for each employee.
Or suppose that the business is located in Camp Hill Borough which has a 1% EIT for non-residents and one of the company's employees lives in Lower Allen Township which has a 1.45% EIT. The employer can only withhold 1% from the employee's paycheck because that is the maximum that the tax collector for Camp Hill Borough will forward to the Lower Allen tax collector. So the employee is obligated to pay the additional .45% tax quarterly.
What I have suggested to other companies is that they create a tax savings plan for their employees in such situations. The employer agrees to withhold the equivalent of the employee's tax obligation from the employee's paycheck and hold it in a special fund. When the employee's quarterly estimated tax payments are due, the employee may withdraw the funds in order to make the payments. In this way the employee is having the necessary funds set aside for his tax obligations, but the employer is not involved in the quagmire that can result from trying to go beyond its obligations. Under such an arrangement the employer is not actually withholding any tax, and the employer is not required to report anything on any quarterly report or the employee's Form W-2.
So employers can meet their tax withholding obligations, assist their employees in paying their proper taxes, and cut the administrative costs associated with collecting and reporting taxes that are not mandated by law.
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