Pennsylvania Payroll Taxes and Withholding Guide (2026)

What Makes Pennsylvania Payroll Different

Federal payroll tax is the same in every state. What changes from one state to the next is the second layer: state income tax withholding, employer unemployment taxes, and any local wage taxes. Pennsylvania's stack is unusual in three ways at once. It taxes wages at a single flat rate rather than a graduated schedule, it collects a small unemployment contribution from employees as well as employers, and it layers local wage taxes on nearly every paycheck through a statewide system that most other states do not have.

Four Pennsylvania-specific items drive most of the confusion. First, the state income tax is a flat 3.07% with no allowances, so the withholding math is far simpler than a bracket state but there is no state W-4 to adjust. Second, almost every municipality and school district levies a local Earned Income Tax administered under Act 32, so two workers with identical pay can take home different amounts based only on the PSD codes for where they live and work. Third, Philadelphia sits outside Act 32 with its own Wage Tax at a much higher rate. Fourth, employees pay a 0.07% Unemployment Compensation withholding that appears as its own small line on the stub. Each is covered in detail below, with the federal baseline explained in the how payroll taxes work guide.

Employee Withholding Overview in Pennsylvania

A Pennsylvania employee usually sees more local lines on a pay stub than a worker in most other states. The deductions fall into four groups: federal taxes, Pennsylvania state income tax, the employee Unemployment Compensation withholding, and local taxes (Act 32 EIT and the Local Services Tax, or the Philadelphia Wage Tax where it applies).

The federal lines work identically to any other state. For Social Security, the 2026 wage base is $184,500, after which Social Security stops for the year. Medicare has no cap. What is unique to Pennsylvania is the flat 3.07% state line, the 0.07% employee UC line, and the local Act 32 or Philadelphia Wage Tax line, all administered under Pennsylvania law.

How Is Pennsylvania State Income Tax Withheld?

Pennsylvania Personal Income Tax is a flat 3.07%. Employers withhold 3.07% from all compensation paid to resident employees and to nonresidents for work performed in Pennsylvania. There are no state tax brackets, no standard deduction, and no personal exemptions in the withholding calculation, so the state portion is simply gross taxable compensation multiplied by 3.07%.

Because the rate is flat, Pennsylvania does not use a state version of the federal Form W-4, and employees cannot claim state allowances to fine-tune withholding the way they can federally. The federal Form W-4 still sets federal withholding, covered in the W-4 withholding explained guide. The one state form an employee may file is Form REV-419, the Employee's Nonwithholding Application Certificate, which stops Pennsylvania withholding for residents of reciprocal states or those who qualify for Pennsylvania tax forgiveness.

Pennsylvania Local Earned Income Tax (Act 32)

This is the layer that catches most people moving to or hiring in Pennsylvania. Nearly every municipality and school district outside Philadelphia levies a local Earned Income Tax (EIT) on wages, and since 2012 these have been collected under Act 32 through a system of regional tax collectors rather than town by town.

Local EIT rates vary by location and are commonly around 1%, though the combined municipal and school district rate is higher in some places and lower in others. The exact rate is tied to the employee's home address and work address, identified by six-digit PSD (Political Subdivision) codes. Employers collect a completed Residency Certification Form from each employee and withhold the higher of the employee's resident EIT rate or the nonresident rate for the work-location municipality, remitting to the appropriate Act 32 tax collector.

The Local Services Tax (LST)

Separately from the EIT, many municipalities impose a Local Services Tax on people who work there. The LST is a flat dollar amount, not a percentage, and the total any worker pays across all jobs and locations in a calendar year is capped at $52. Where the combined rate is more than $10 per year, the employer must deduct it in equal installments across pay periods rather than all at once, and municipalities must exempt workers who earn less than $12,000 per year. The LST is withheld at the work location, so it follows where the job is performed, not where the worker lives.

The Philadelphia Wage Tax

Philadelphia is not part of the Act 32 system. Instead it levies its own Wage Tax, which replaces the local EIT for anyone connected to the city. For the current period the rate is 3.735% for Philadelphia residents and 3.425% for nonresidents who work in Philadelphia. Residents owe the tax on all wages regardless of where they physically work, while nonresidents owe it only on wages for work performed inside the city.

Any employer with a Philadelphia resident on payroll, or with a work location in the city, must register with the City of Philadelphia and withhold the Wage Tax, filing quarterly through the Philadelphia Tax Center. The Wage Tax is far larger than a typical suburban EIT, so where an employee lives or works relative to the city line has a real effect on take-home pay. Philadelphia's resident and nonresident rates are scheduled to step down over several years, so payroll systems should confirm the current rate each period.

Employer Payroll Obligations in Pennsylvania

Pennsylvania employers carry both the federal employer taxes and the state Unemployment Compensation tax. The federal side, covered in the employer payroll tax obligations guide, includes the matching 6.2% Social Security and 1.45% Medicare plus Federal Unemployment Tax (FUTA). On top of that, Pennsylvania adds the employer UC contribution, which is separate from the small employee UC withholding.

For 2026 the Pennsylvania UC taxable wage base is $10,000 per employee, one of the lower wage bases in the country, so the employer UC tax is capped once an employee's year-to-date wages pass $10,000. New non-construction employers pay 3.822% and new construction employers pay 10.5924%, both of which already include the 9.2% surcharge in effect for 2026. Experience-rated employers pay a total rate between 1.419% and 10.3734% depending on their claims history, and most rated employers also owe an additional 0.60% Additional Contributions tax. These are employer costs and are separate from the employee UC line on the pay stub. The combined cost-to-hire can be modeled with the employer payroll tax calculator.

Pennsylvania Employee Unemployment (UC) Withholding

Pennsylvania is one of only a handful of states where employees, not just employers, contribute to the unemployment fund. This surprises workers who move from a state where unemployment is entirely employer-funded and then see a UC line come out of their own pay.

For 2026 the employee UC withholding is 0.07% of gross wages, which works out to 70 cents per $1,000. Unlike the employer UC tax, the employee withholding has no wage cap, so it applies to every dollar of covered wages all year. The amount is small, but it is a distinct line and is separate from the much larger employer UC contribution described above. The employee UC withholding is set each year by the Department of Labor and Industry and is not subject to appeal.

Pennsylvania Supplemental Wage Withholding

Supplemental wages are payments outside regular salary: bonuses, commissions, overtime, sales awards, and back pay. Many states apply a special flat supplemental rate to these payments. Pennsylvania does not.

• Pennsylvania state income tax on supplemental wages: the same flat 3.07% that applies to regular wages.
• Local Earned Income Tax: applies to supplemental compensation at the employee's local rate.
• Employee UC withholding: the 0.07% applies to supplemental wages as well, with no cap.

Because the state rate is already flat, there is no separate Pennsylvania supplemental schedule to look up. Federal income tax withholding on supplemental wages is a separate calculation set by the IRS, and Social Security and Medicare still apply under their own rules.

Pennsylvania Filing and Payment Frequency

Pennsylvania employers remit withheld state income tax and file through myPATH, the Department of Revenue's online system that replaced e-TIDES. The deposit frequency, semiweekly, semimonthly, monthly, or quarterly, depends on how much tax the employer accumulates, with larger withholders remitting more often. Employers file a quarterly reconciliation and an annual withholding statement (Form REV-1667 transmittal with the W-2 data). The federal deposit schedule is covered separately in the payroll tax deadlines guide.

Unemployment Compensation is reported and paid separately from income tax withholding, on a quarterly basis through the Department of Labor and Industry's UC system. Local Earned Income Tax and Local Services Tax are remitted to the relevant Act 32 tax collector, and the Philadelphia Wage Tax is filed with the City of Philadelphia. New employees must also be reported to the Pennsylvania new hire reporting program within 20 days of the hire date.

How Take-Home Pay Works in Pennsylvania

The calculation sequence runs from gross pay down to net pay. Pre-tax deductions can reduce the federal income tax base, but Pennsylvania taxes most compensation on gross wages, and the state does not recognize as many pre-tax reductions as the federal system does.

1. Start with gross wages for the pay period.
2. Subtract any federal pre-tax deductions (401(k), Section 125 health premiums) to find taxable wages for federal income tax.
3. Apply federal income tax withholding using the Form W-4 and IRS Publication 15-T.
4. Apply Pennsylvania state income tax at a flat 3.07% of taxable compensation.
5. Apply the local Earned Income Tax (or the Philadelphia Wage Tax) at the applicable local rate.
6. Subtract Social Security (6.2%) and Medicare (1.45%) on gross wages.
7. Subtract the 0.07% employee UC withholding and the per-period share of any Local Services Tax.
8. The remainder is net pay.

To see exact figures for a specific salary, filing status, and pay frequency, use the paycheck calculator or the take-home pay calculator for a full pre-tax benefits stack.

What Pennsylvania Employees Should Check on a Pay Stub

• PA state tax line: Confirm Pennsylvania income tax is being withheld at 3.07% of taxable compensation, with no state allowances applied.
• Local EIT line: Verify a local Earned Income Tax is present and that the rate matches your home municipality, unless you live or work in Philadelphia.
• Philadelphia Wage Tax: If you live in or work in Philadelphia, confirm the Wage Tax at 3.735% (resident) or 3.425% (nonresident) rather than an Act 32 EIT.
• UC line: Verify the 0.07% employee Unemployment Compensation withholding, which should never stop, since it has no wage cap.
• Local Services Tax: If your work municipality imposes the LST, the total for the year should not exceed $52 across all employers.

What Pennsylvania Employers Should Verify Before Running Payroll

• State registration: Confirm active employer accounts for both Pennsylvania withholding (myPATH) and Unemployment Compensation, and check the annual UC rate notice.
• Residency Certification Forms: Collect PSD codes for each employee's home and work locations so the correct Act 32 EIT is withheld.
• Philadelphia registration: If any employee is a Philadelphia resident or works in the city, register with the City of Philadelphia and load the current Wage Tax rate.
• UC settings: Confirm the $10,000 wage base, the assigned employer contribution rate, and the 0.07% employee UC withholding are all set in the payroll system.
• LST setup: Confirm the correct Local Services Tax amount for each work location, spread across pay periods where required, with the low-income exemption available.
• New hire reporting: Report each new worker to the Pennsylvania new hire reporting program within 20 days.

Pennsylvania Payroll Quick Facts (2026)

Frequently Asked Questions