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Compiled by Robert W. Ditmer,
CPP
What Is the Earned Income Tax?
In 1965 the Pennsylvania General Assembly passed the Local Tax Enabling Act, commonly referred to as Act 511. Act 511 empowered local school districts and municipalities to levy an earned income tax for general revenue purposes. This Earned Income Tax (EIT) is commonly referred to as a “local tax” or “wage tax.” By 1999, 94.6% of all municipalities in Pennsylvania had enacted the local EIT.
There are a number of factors that have made it difficult to deal with the Pennsylvania EIT:
- The EIT can be imposed separately by a municipality or by a school district. Under Act 511 the maximum tax rate was originally set at 1% of earned income. Where the school district and the municipality impose the tax separately and they overlap jurisdictions, the tax is halved. Confusion often occurs when in one part of a municipality the tax rate is 1%, whereas in another part of the municipality the municipal tax rate is .5% and the school district tax rate is .5%.
- Each municipality and school district can have its own tax administrator, so employers with multiple locations in the state may have to deal with a multitude of different tax administrators.
- School district taxes cannot be imposed on non-residents, but each municipality must decide for itself whether or not to impose the tax on non-residents. Furthermore, the tax rate on non-residents may be different than the tax rate on residents.
- Residents of the City of Philadelphia and the School District of Pittsburgh have to be treated differently from all other employees who work in the state.
What we will be trying to do in this guide is to cut through the confusion surrounding these issues.
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