If your small business has employees working in Pennsylvania, you'll need to withhold and pay Pennsylvania income tax on their salaries. This is in addition to having to withhold federal income tax for those same employees. Here are the basic rules on Pennsylvania state income tax withholding for employees.
Note: Apart from Pennsylvania state tax withholding, there may also be local taxes subject to withholding, which are not covered in this article.
With rare exceptions, if your small business has employees working in the United States, you'll need a federal employer identification number (EIN). You should obtain your EIN as soon as possible and, in any case, before hiring your first employee. EINs are issued by the IRS and you'll need one first and foremost for federal taxes. In addition, some states use the federal EIN for state withholding tax purposes. Other states (like Pennsylvania) issue separate state tax ID numbers. You'll need an EIN to register with the state (see below). You can apply for an EIN at the IRS website. Generally, if you apply online, you will receive your EIN immediately.
Apart from your EIN, you also need to establish a Pennsylvania withholding tax account with the Pennsylvania Department of Revenue (DOR). You set up your account by registering your business with the DOR either online or on paper. To register online, go to the Online Business Registration (Online PA100) website. You can navigate to the site from the DOR's e-Services Center webpage. If you register online you should receive your state tax account number in 1-2 days. To register on paper, use Form PA-100, PA Enterprise Registration Form. Blank forms are available from the Forms and Publications section of the DOR website. If you register on paper, you should receive your account number in 7-10 days. There is no fee to register your business with DOR.
All new employees for your business must complete a federal Form W-4. Unlike many other states, Pennsylvania does not have a separate state equivalent to Form W-4, but instead relies on the federal form. You can download blank Forms W-4 from irs.gov. Clearly label W-4s used for state tax withholding as your state withholding form. You should keep the completed forms on file at your business and update them as necessary.
In Pennsylvania, there are four possible payment schedules for withholding taxes: semiweekly, semimonthly, monthly, or quarterly. Your payment schedule ultimately will depend on the average amount you hold from employee wages over time. The more you withhold, the more frequently you'll need to make withholding tax payments.
The exact threshold dollar amounts for the different payment schedules, as well as other rules, may change over time so you should check with the DOR at least once a year for the latest information.
Here are the due dates for the various payment schedules:
If the payment is due on a Saturday, Sunday, or holiday, the due date is extended to the next business day.
Most businesses are required to make payments either online or by phone. To pay online, use the DOR's e-TIDES system. To pay by phone, use the DOR's TeleFile system. If your business is eligible and you choose to pay on paper using a check, you can download payment vouchers (Form PA-501, Employer Deposit Statement of Withholding Tax) from the e-TIDES system.
For information on calculating withholding, check the latest version of DOR Publication Rev-415 AS, Employer Withholding Information Guide, which you can download from the Forms and Publications section of the DOR website.
Apart from making scheduled tax payments, businesses also must file quarterly withholding tax returns. The returns reconcile the tax paid for the quarter with the tax withheld for the quarter. Use Form PA W-3. The return must be filed online using e-TIDES or by phone using TeleFile.
Quarterly returns are due on or before the last day of the month following the close of the quarter:
As with tax payments, any return due date that falls on a Saturday, Sunday, or holiday is extended to the next business day.
After the end of the year, you must file an annual reconciliation with the DOR that summarizes the employee taxes you've withheld during the year. The annual reconciliation is in addition to providing each of your employees with a federal form W-2 summarizing the employee's withholding for the year. You can file on paper or online. If you file on paper, use Form REV-1667R, W-2 Transmittal and attach copies of the federal W-2s sent to all of your employees working in Pennsylvania. The form must be sent by regular mail. To file online, use the e-TIDES system. Large employers are required to file electronically (see the DOR website for details). Unlike the end-of-February due date for most other states' annual reconcilations, the Pennsylvania annual reconciliation is due on or before January 31.
This article is only concerned with employees, not independent contractors. In general, different tax rules apply to independent contractors.
You may decide that it's easiest to hand over responsibility for payroll, including withholding taxes, to an outside payroll service. If so, keep in mind that your business, or even you personally, may still be held directly responsible for mistakes made by an outside payroll company.
This article touches on basic elements of Pennsylvania employee withholding taxes. Under Pennsylvania law, people who have responsibility for collecting and paying withholding taxes for a business may be held personally liable for a failure to pay. Avoid possible penalties for making mistakes by checking both the IRS and DOR websites for the latest information. You also can get more information about small business tax issues in other articles here on Nolo.com.