Question for PA Preparers - Local Earned Income Tax

[JohnH]

Client moved to PA in March, 2012, so they file a PA Part-Year return. I also see reporting on the W-2 for Local Wages, with associated withholding as well. In their paperwork are copies of preprinted "Taxpayer Annual Local Earned Income Tax Return" from Keystone Collections Group. But there are two preprinted forms in the taxpayer's name ane one form in the spouse's name. Is this more or less routine that they send multiple preprinted forms with new reisdents, or is there something else I need to be aware of?

[John of PA]

Yes, it happens often. Just use whichever one best suits you logisticlly.

[BP.]

Is this more or less routine that they send multiple preprinted forms with new reisdents, or is there something else I need to be aware of?

It is routine that they send multiple forms, or no forms, or forms with the name of the spouse you divorced years ago, or forms with a jurisdiction you haven't lived in in years. It's a mess sometimes.
I use my tax software to print the local return for me, otherwise my need for white-out is extreme.
Then I attach any preprinted forms so that Keystone can clean up their database for that taxpayer.
You can report both spouses on one form; they don't have to have their own separate forms.

[John of PA]

FYI my software (Drake) automates the whole process. All you enter is the taxpayers school district and municpality in the general info tab, by name, and the Local Earned Income Tax Return has the municapal code, tax rate and address of the assigned collecter (ex: Keystone, Berkheimer, Lancaster Co) all automatically, it's really nice. Lacerte, who I used for 17 years did not do this and made you look everything up and enter it manually.

[JohnH]

Thanks John & BP. I also use Drake, but had brought the file home to look over the documents during the weekend. Looks like Drake will handle everything for me. Without the input from both of you I would probably have been second-guessing everything I did.

I also notice another thread which addresses a couple of other questions I had about this client. But there's still one issue puzzling me. The client has two w-2 forms showing the local wges & withholding. One w-2 shows 1% withheld on part of the income while the the W-2 shows only .5% withheld on the remainder of the income. Yet both W-2's show the locality name as "65". The sum of the two Box 18 entries equals the Box 16 entry for total state wages. My guess is the client has worked at multiple locations and the withholding is less for one of them, but I think I'll check with the client about this.

[BP.]

My guess is the client has worked at multiple locations and the withholding is less for one of them

Whatever the reason for the withholding scenario, keep in mind EIT is calculated at the resident jurisdiction rate, not the work jurisdiction.

[John of PA]

The client will end up owing on the Local Return the other half of percent. The 65 itentifies the County in PA which in turn identifies who the collector is, but each county comprises of various municipalities with different tax rates, Drake knows all the rates. Go to Drakes PA screen then type LOC and you will go to the local screen and enter school district municipality match in the pull down menu, you will have to ask the client the name of the school disstrict and the name of the township or municipality. Then put R for resident and thats it.

[marlenew]

Whatever the reason for the withholding scenario, keep in mind EIT is calculated at the resident jurisdiction rate, not the work jurisdiction.

Act 32 now requires the employer to withhold the greater of the employee's resident tax rate for where they live or nonresident tax rate for where they work.
The website www.newpa.com has all the information. If you work in a muncipality with e.g. 1.35% rate and live in a 1% rate you must pay local tax on your wages @ 1.35%. The local used to be so simple but not anymore...but than again PA doesn't make anything simple when it comes to our taxes.

[BP.]

you work in a muncipality with e.g. 1.35% rate and live in a 1% rate you must pay local tax on your wages @ 1.35%

???
My twp is 1.125%. Neighboring municipality is 2.5%. Only residents of the 2.5% muni pay that rate; not employees who work there but reside elsewhere. Preprinted EIT forms include the resident jurisdiction's rate. We don't need to find out the work jurisdiction's rate and apply that instead.

(Exception of course for cities like Phila, with a wage tax that stays in the work jurisdiction.)

[marlenew]

Some taxing jurisdictions have a distressed tax (Act 205 or Act 47) that is imposed on both residents of that jurisdiction and non-residents employed within that jurisdiction. If the additional earned income tax imposed exceeds the earned income tax rate due your resident municipality/school district under Act 511, that portion of the tax is not refundable; rather, it remains within the township or borough which has enacted the distressed tax.

[BP.]

Some taxing jurisdictions have a distressed tax (Act 205 or Act 47) that is imposed on both residents of that jurisdiction and non-residents employed within that jurisdiction. If the additional earned income tax imposed exceeds the earned income tax rate due your resident municipality/school district under Act 511, that portion of the tax is not refundable; rather, it remains within the township or borough which has enacted the distressed tax.

OK, distressed tax, which applies in certain places. Have seen that in cities like Reading & Chester. Does not get applied to withholding for EIT; it just stays in work jurisdiction. You are right, PA doesn't make it simple!