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Automatic Withholding Of Wage Taxes Begins in Pennsylvania

The net amount of the first paycheck you receive in the new year might be a bit smaller. That's because a final phase of Pennsylvania Act 32 is being implemented on January 1st and many employers will be withholding their workers' local Earned Income Tax (EIT) or wage tax for the first time. So, instead of receiving quarterly reminders from your city, township, or borough to pay the tax of 1 percent or so, that amount must now be withheld from your paycheck.

Act 32 became law in 2008, with the objective of consolidating the collection of the EIT on a countywide basis. "We ultimately supported the bill as it worked its way through the General Assembly," said Rick Schuettler, deputy executive director for the Pennsylvania League of Cities and Municipalities. "There were some things added to it that we thought, at the end of the day, made sense."

Through the years, there were complaints from taxpayers and others about the inconsistency as to how tax collectors and local jurisdictions enforced the EIT. Act 32 standardizes the collection system with the creation of countywide committees comprised of representatives from municipalities and school districts.

However, Schuettler said that municipalities that already had a good collection system in place didn't want the process upset.

"Certainly one of the issues that everyone has a concern [about] is cash flow, because of the last quarter [revenues] coming in later under Act 32," said Schuettler. "But hopefully, as that gets implemented over the next few years, it won't be as much a crunch, and overall revenues will be maximized."

He expects that it probably will take some time to get used to the new collection system, and municipalities will have to consider the change in cash flow as part of the budgeting process.

The automatic withholding could help municipalities collect from residents who don't file their quarterly payments. "It could, because it will create a better universe of payers," Schuettler said. "It ultimately could find more people who aren't on the rolls."

But Schuettler is taking a "wait and see" stance as to whether Act 32 will be a success. "If it results in better collection, a better process for employers, and a higher percentage collection of the universe [taxpayers] of what is out there who should be paying, if that's what the result is, then it will be better for municipalities."