Pennsylvania Local Earned Income Tax: The Employer’s Complete Guide

If you’ve looked at payroll compliance in other states, you may have assumed the process is similar everywhere: withhold federal taxes, withhold state taxes, done. Pennsylvania will disabuse you of that notion quickly. The commonwealth requires employers to withhold a local Earned Income Tax on behalf of every municipality where employees work — and with more than 2,500 separate taxing jurisdictions, each with its own rate and its own collection agent, this is the defining payroll challenge in Pennsylvania.

Many mainland businesses that expand into Pennsylvania underestimate this complexity entirely. Ignoring it or guessing at it creates under-withholding, penalties, and potential liability to both the state and the individual municipalities. This guide covers exactly how the system works and what you need to do as an employer to stay compliant.

1. What Is the Local Earned Income Tax?

The Local Earned Income Tax (EIT) is a local income tax authorized under the Pennsylvania Local Tax Enabling Act (Act 511 and its successors). It is assessed on earned income — wages, salaries, net profits from self-employment, tips, and other compensation for services performed — at rates set by individual municipalities (boroughs, townships, and cities).

Key characteristics of the EIT:

• It is a municipal tax, not a state tax. The Commonwealth of Pennsylvania does not administer it — each municipality sets the rate, and a private Tax Collection District collects and distributes the revenue.
• It is paid by the employee — but employers are responsible for withholding it from every paycheck and remitting it to the appropriate TCD.
• It applies to earned income only. Investment income, rental income, and other passive income are generally not subject to EIT.
• Every municipality is different. There is no uniform statewide EIT rate. The rate for any given municipality must be looked up in the official DCED database.
• Rates can change annually. Municipalities can vote to change their EIT rate each year, so rates must be verified at the start of each calendar year.

2. The Work Location Rule — The Most Important Thing to Know

How It Works in Practice

Consider this scenario: You own a business in Harrisburg (Dauphin County), and your employee lives in a suburb of Harrisburg in Lower Paxton Township. The relevant EIT rate for withholding purposes is Harrisburg’s rate (the work location), not Lower Paxton Township’s rate (the residence). You remit the withheld tax to Harrisburg’s designated Tax Collection District, not to Lower Paxton Township’s TCD.

The Resident Credit

Pennsylvania law allows employees to claim a credit on their personal EIT return for taxes paid to the work location municipality against taxes owed to the residence municipality. This is why the withholding obligation is based on work location: the employee is taxed at both jurisdictions’ rates in effect, but the credit prevents true double taxation. As an employer, your obligation ends at withholding the work location rate and remitting it to the appropriate TCD — the credit calculation is the employee’s responsibility on their personal return.

What Counts as the “Work Location”?

The work location is generally where the employee physically performs their work duties. For office workers who report to a fixed location every day, this is straightforward. For employees with variable work sites (contractors, salespeople, mobile workers), you generally use the employer’s primary location or the location where the employee is based. Remote work situations create additional complexity — see the Remote Workers section below.

3. EIT Rates Across Pennsylvania

With over 2,500 taxing jurisdictions, it is impossible to list every rate in Pennsylvania. What follows are notable reference points and major city rates as of 2026:

Major City Rates

Philadelphia: A Special Case

Philadelphia operates under its own distinct tax structure. In addition to the City Wage Tax rates noted above, Philadelphia also has a School District Income Tax on earned income. If you have employees working in Philadelphia, you must withhold both the City Wage Tax and the School District tax. Philadelphia’s Department of Revenue has its own systems separate from the rest of the statewide TCD framework — Philadelphia employers deal directly with the City of Philadelphia, not with a TCD. See the City of Philadelphia’s Revenue Department for current rates and filing instructions.

4. Tax Collection Districts (TCDs)

Pennsylvania organizes the administration of local EIT through Tax Collection Districts (TCDs). Instead of each municipality collecting its own EIT, the state is divided into TCDs — typically one per county — and each TCD is managed by a designated tax collector (either a county agency or a private collection firm).

How TCDs Work

• Employers register with the TCD for each county or work location area where they have employees, not with individual municipalities.
• Employers remit withheld EIT to the TCD, which then distributes the funds to the appropriate municipalities and school districts.
• TCDs file returns on a quarterly basis. You remit withheld EIT for each quarter along with a return identifying the employees, wages, and amounts withheld.
• Each TCD has its own system. Some TCDs have online portals for filing and payment; others require paper forms or use third-party filing services. Procedures vary by TCD.

Finding the Right TCD

Use the DCED Municipal Statistics database (described in the next section) to identify which TCD serves the municipality where your employees work. The database provides the TCD contact information, the TCD’s website, and the official EIT rate for each municipality.

Common TCD Examples

Some of the well-known tax collectors serving as TCDs include:

• Berkheimer Tax Administrator — serves many municipalities across southeastern and central PA.
• Keystone Collections Group — serves municipalities across multiple counties statewide.
• Jordan Tax Service — serves Allegheny County (Pittsburgh area).
• City of Philadelphia Revenue Department — Philadelphia handles its own collection.
• Various county-operated tax bureaus in other counties.

5. DCED Oversight and the Municipal Rate Database

The Pennsylvania Department of Community and Economic Development (DCED) oversees the local EIT system at the state level. Its most important resource for employers is the Municipal Statistics database, available at the DCED website, which allows you to:

• Look up the official EIT rate for any Pennsylvania municipality.
• Identify the Tax Collection District assigned to collect EIT for that municipality.
• Find the TCD’s contact information and website.
• Verify whether a municipality imposes the Local Services Tax and at what rate.
• Access municipal contact information for direct questions.

The DCED database is the authoritative source for Pennsylvania EIT rates and TCD assignments. Rates from other sources — including this article — should always be verified against the DCED database, as municipal rates can change annually.

6. What Employers Must Do: Step by Step

Step 1: Identify All Work Location Municipalities

Compile a list of every Pennsylvania municipality where your employees physically work. For each location, look up the EIT rate and the assigned TCD in the DCED Municipal Statistics database.

Step 2: Register with Each TCD

Contact each TCD and register as an employer. Most TCDs have an online registration process or can be contacted directly. You will receive an account number with the TCD, which you will use on all quarterly filings.

Step 3: Withhold the Correct Rate

For each employee, withhold local EIT at the rate for the municipality where that employee works. Withhold from every paycheck, whether weekly, biweekly, semi-monthly, or monthly.

Step 4: Remit Quarterly to Each TCD

File quarterly returns with each TCD where you have employees, remitting the accumulated withheld EIT for that quarter. Quarterly deadlines generally mirror the standard Q1–Q4 pattern (April 30, July 31, October 31, January 31), but verify each TCD’s specific deadlines.

Step 5: Update Rates Annually

At the start of each new calendar year, check the DCED Municipal Statistics database for any rate changes in the municipalities where your employees work. Municipalities can and do change their EIT rates, and using the prior year’s rate is not an excuse for under-withholding.

Step 6: Issue Annual W-2s with Local Tax Information

Pennsylvania’s annual W-2 requirements include local EIT information. Box 18 (Local wages), Box 19 (Local income tax withheld), and Box 20 (Locality name) on the W-2 must be completed for employees subject to local EIT. Employees need this information to file their personal EIT return with the appropriate TCD.

7. Employers with Multiple Locations

If your business has employees working in more than one Pennsylvania municipality — or in one municipality while living in another — you will potentially be dealing with multiple TCDs simultaneously.

For each distinct work location municipality, you must:

• Register with that municipality’s TCD.
• Withhold at that municipality’s rate for employees who work there.
• File quarterly returns with that TCD.
• Track which employees worked where during each quarter (important for mobile workers who split time between locations).

For employees who split time between multiple municipalities, you may need to apportion wages to each location based on the time worked there. This is particularly common for sales staff, field technicians, and employees who work at both a home office and a company location. Consult a Pennsylvania payroll professional for guidance on apportionment.

8. Remote Workers: A Complex Situation

Remote work has created one of the most contested areas of Pennsylvania local EIT law. The core question is: when an employee works from their home in Pennsylvania instead of at the employer’s office, which municipality has taxing authority?

The General Position

Pennsylvania’s law has traditionally tied local EIT withholding to where the employee is assigned to work (the employer’s location), not where the employee actually performs their work on any given day. Under this interpretation, if an employee’s official work location is your Harrisburg office, you withhold at Harrisburg’s rate — even if the employee works from home in another municipality most of the time.

The Employee’s Residence Municipality

However, if an employee permanently works from home — has no assigned company location and is never physically present at a company office — the home municipality may successfully assert taxing authority. In these cases, the residence municipality’s rate would apply for withholding, and you would remit to that municipality’s TCD.

Our Recommendation

Remote work EIT questions do not have universally settled answers, and different TCDs may take different positions. If you have significant remote workforce in Pennsylvania, consult a Pennsylvania tax professional for guidance specific to your situation. Getting this wrong means both the wrong municipality receives the tax and the employee may owe additional local taxes — a compliance problem for everyone.

9. Local Services Tax (LST): A Separate Obligation

In addition to the EIT, many Pennsylvania municipalities impose a separate Local Services Tax (LST) on individuals who work within their borders. The LST is a flat annual fee of up to $52 per year per employee — not a percentage of wages.

• Not all municipalities impose the LST. Verify whether the municipality where your employees work has an LST in place.
• The annual amount is divided proportionally across pay periods (e.g., $52 ÷ 26 biweekly periods = $2.00 per paycheck).
• Employees earning less than $12,000 from all sources may claim an exemption by providing written notice to the employer.
• LST payments are typically remitted to the same TCD or municipality that handles EIT collection for that location, but verify with the specific TCD.

10. Frequently Asked Questions

What happens if I don’t withhold local EIT?

Employers who fail to withhold and remit local EIT can be held personally liable for the amounts that should have been withheld, plus penalties and interest. The employee may also owe the tax directly to the municipality and face additional penalties. The risk falls on both parties, but the employer’s failure to withhold is the triggering event.

Do I need to withhold EIT for out-of-state employees who work in Pennsylvania?

Yes. If an employee from another state works in Pennsylvania (even temporarily), local EIT withholding applies for the Pennsylvania work location during those days. The employer must withhold at the applicable Pennsylvania local rate for days worked in Pennsylvania.

Do Pennsylvania employees who live in reciprocal agreement states still owe local EIT?

Pennsylvania has reciprocal tax agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia covering state income tax. These agreements do not eliminate the local EIT obligation. Local EIT is a separate tax from state income tax, and reciprocal agreements generally do not extend to local taxes. An employee from New Jersey working in Pennsylvania still owes local EIT on Pennsylvania-source wages.

Can I look up local tax rates online?

Yes. The DCED Municipal Statistics database is available online and provides official rates for every Pennsylvania municipality. Additionally, many TCDs (such as Berkheimer and Keystone Collections) maintain their own searchable rate databases. Always use an official source — not unofficial websites — to verify rates.

What if I find out I’ve been withholding the wrong rate?

Correct the withholding as soon as possible going forward. For the under- or over-withheld amounts, contact the affected TCD(s) to discuss correction procedures. In most cases, under-withheld amounts can be corrected in subsequent quarters with additional remittances, while over-withheld amounts may require a refund request process. Proactive disclosure generally results in better outcomes than waiting to be discovered.