The Breakdown of Pennsylvania State and Local Taxes

Pennsylvania State Tax and Its Burden

Payroll professionals working and living in Pennsylvania are quite familiar with the state and local tax code - one of the most complicated in the country. Residents face a high state and local tax burden that equals 10.2% of their income, well above the national average of 9.9%. State and local governments use revenue earned from these taxes to fund several operations across the state - and they’re sure to get it. Tax collection in Pennsylvania is rising gradually - with an increase of 700% over the last 63 years. Across Pennsylvania, 73 agencies assigned to different districts collect state and local taxes.

The aforementioned combined state and local tax rates leave Pennsylvania with the 15th highest tax burden in the nation, based on research from 2012’s fiscal year. A 'tax burden' at this level is the amount of income Pennsylvania residents pay in local and state taxes to both their home state and other states - for example, if a resident works in one state but lives in Pennsylvania. Pennsylvania residents also shell out taxes to neighboring states when traveling, and making purchases like gas and other goods.

Local Taxes

Much of the burden comes from local taxes, as the state’s income withholding tax is a flat rate. Only eight states in the country tax at a single-rate, rather than a graduate-rate. Pennsylvania’s state tax withholding rate? A mere 3.07%. But, as mentioned, that rate is eclipsed by the more than 3,000 local taxing jurisdictions. This includes municipalities and school districts. Local rates range from 0.5% to 3.9% (Philadelphia), creating a possible state-local combination of 6.98%. Texas has the second largest amount of local taxing authorities; however, Texas shadows Pennsylvania in population, geographic area, and overall economy, further showcasing the depth of local tax code in Pennsylvania.

Philadelphia City Tax

Philadelphia, in particular, creates the most complicated tax scenarios for the state. In Philadelphia, there is one rule: If someone works in that city, he or she must pay the local tax rate of 3.47%, no matter what. It doesn’t matter if that person lives in Philadelphia or not. He or she could live in Delaware, but if they work in Philadelphia, they have to pay the 3.47% rate. Essentially, if a person commutes to an office in Philadelphia in any way, shape, or form - he or she will pay the local city tax. The only way to escape this tax would be to work just outside the city lines in a co-working office.

Even More Taxes

Other interesting taxes a resident may come across include state taxes on cigarettes, beer, and spirits. Referred to as 'sin taxes', the rates are $1.60 per pack, $.08 per gallon (beer), and $7.23 per gallon (spirits). Wine is not included in the spirits tax.

Corporate Taxes

When it comes to corporate income taxes, Pennsylvania taxes are high. The corporate income rate is the second highest in the U.S. at 9.9%. The only state higher is Iowa. The above-mentioned local taxes increase business taxes as well. Localities create and collect business privilege and mercantile taxes on a company’s revenue - creating a tax pyramid that many economists find toxic.

Finding all this a little much to take in - let alone successfully run payroll? Payroll Point specializes in getting the right taxes, the first time and that includes Pennsylvania.